Covid-19: economic impact measures

It is necessary for the PTI governments in the Centre and in three provinces and for the PPP government in Sindh to learn from China and others

Speaking at a press conference on April 3, Prime Minister Imran Khan announced a relief and stimulus package for the construction sector besides giving it the status of an industry.

A number of measures were put forward on the occasion by the prime minister who said the package would boost economic revival on its launch on April 15. The other main consideration, according to him, was mitigating the financial hardships faced by the daily wagers and other vulnerable people due to the lockdown. He said the state lacked resources to pay them the Rs 17,000 a month minimum wage legislated by the provincial governments.

The March 24 package was not only delayed, it also offered no meaningful economic/tax incentives to those affected by the outbreak, lockdown and consequential contraction in economy, lay-offs, stock-exchange crash and cancellation of export orders. The same thing happened with package for the construction industry. There were no provisions to ensure security of employment and workplace safety.

Out of the many actions announced on April 3, the tax provisions finally became effective through Tax Law (Amendment Ordinance, 2020), promulgated by the president on April 19.

The tax amnesty offered in Tax Law (Amendment Ordinance, 2020) has not been extended to selling open plots. The owner must start construction by December 31, and funds earmarked for the purpose have to be deposited in a separate bank account. Registration with the Federal Board of Revenue (FBR) is compulsory.

There is no amnesty for the buyers. Due to the liquidity crunch, the demand in the market is low. If buyers have no amnesty, unless they become developers, how will this scheme be successful? It seems that the rules have rendered the prime minister’s idea unworkable.

As regards affordable houses for the poor under Naya Pakistan Housing Scheme, it is not economically viable, especially in the post coronavirus environment, as the targeted beneficiaries lack the required equity to avail even the reduced-rate house loan financeto which commercial banks have yet to commit themselves.

It may be recalled that the tax policies introduced in the Finance Act 2019 resulted in a sharp contraction of 7.6 percent in FY19 in the housing sector after an 8.2 percent growth during FY18.

If the government wishes to avoid a deep recession and to safeguard the interests of unskilled and skilled workers, it needs to do what other countries have done and are doing. Their legislators have passed comprehensive laws, covering all areas from economic relief to cash disbursements. The United States Congress, for example, passed the Coronavirus Aid, Relief, and Economic Security (CARES) Act on March 23 to provide $2 trillion for a package under which millions of Americans, many of whom are judgment debtors, are to receive “economic impact payments” from the Department of the Treasury.

In a write up an expert noted that such “payments range from $1,200 for qualifying individuals or head-of-household filers, to $2,400 for married couples filing jointly, plus $500 per child”. It is worthwhile to mention that the CARES Act provides fast and direct economic assistance for American workers and families, small businesses, and preserves jobs for American industries. There has been no similar legislation in Pakistan.

Our National Assembly last met on March 13, and the Senate on March 4. Elsewhere in the world the governments and legislators are working hand-in-hand to pass laws to provide on emergency basis relief packages for their citizens and businesses. On April 14, the National Assembly speaker constituted a Committee on Virtual Session during Covid-l9 pandemic. The first meeting of the committee was held on April 18, to consider recommending amendments, if any, in the Rules of Procedure and Conduct of Business in the National Assembly, 2007 for holding a virtual session of the National Assembly.

On April 21, the Muslim League (Nawaz) opposed such a move. The Senate chairman and speakers of the provincial assemblies have taken no such initiative.

It is worthwhile to note that the parliament of Estonia, on April 15, adopted a bill introducing amendments to a number of laws aimed at mitigating the Covid-19 pandemic effects on the economy. Mauritius extended the self-employed assistance scheme (SEAS) and the wage assistance scheme (WAS) to eligible self-employed individuals and tradespersons. All of them are receiving financial support from government, ensuring that there are no lay-off in the private sector unlike Pakistan where the State Bank of Pakistan (SBP) has asked the employers to take loans at 3 percent if tax filers and 5 percent if not on Active Taxpayers’ List of the FBR.

The government of Mauritius has assumed responsibility to provide to all private employees an amount of around $ 677 per employee per month under its WAS. China, while leading the medical fight against the outbreak, has also given immediate tax breaks to restore manufacturing operations, service industries and those facing disruptions to transport workers, exacerbated by quarantines/travel restrictions in many areas of the country.

The Chinese companies that supply and store meat, vegetables, and eggs and daily necessities are given reductions in the VAT, real estate taxes, and urban land use taxes. No similar incentives have been announced by our government.

Our prime minister, his cabinet and his advisers took weeks to respond to the situation and even in their March 24-package deferred the “special relief package for the construction sector” aimed at “kick-starting different industries and to provide jobs in these difficult times”.

Much before the corona outbreak, onerous tax policies and high interest rates had destroyed the real estate/construction sectors; negatively affecting a host of industries and causing irreparable damage to the economy.

Given the crisis, the need is for a smart lockdown and income tax holidays for affected sectors, a 2 per cent interest rate and drastic cuts in prices of electricity, petrol products and sales tax rates.

Our policymakers should have followed the Chinese Ministry of Finance which announced in early February an exemption from import duties, VAT and consumption tax for any imports for the prevention of the epidemic as well as eatables.

We acted as late as on March 24, only to waive duties on certain eatable items. SROs issued for these were poorly drafted so that the importers are still facing difficulties.

The wizards in the Ministry of Finance and the FBR miserably failed to realise that a long-term tax holidays were needed to kick-start the real estate/housing/construction sectors and avoid massive unemployment and recession.

In the 18th Constitutional Amendment legislation on labour was devolved to provinces. Not one has promulgated any law or ordinance in this regard. Tax Law (Amendment Ordinance, 2020 also contains nothing for Islamabad Capital Territory (ICT) to make it legally obligatory for the construction industry to comply with social security, old-age benefits, contributions to Workers’ Welfare Fund and in case of companies, 5 percent profit sharing under the Companies Profit (Workers’ Participation) Act of 1968 for all the employees, workers, permanent or on contract. Similarly no such announcement has come from any of the provinces.

Faced with lay-offs, industrial slow-downs, dwindling agriculture, sluggish economy, high inflation, exorbitant interest rates, fiscal deficit and unbearable debt servicing, Pakistan was already in an economic mess prior to the outbreak of coronavirus.

It is necessary for the PTI governments in the Centre and in three provinces and the PPP government in Sindh to learn from China and others and take the measures that have succeeded there and move towards a smart lockdown, incentivising all those affected by the crisis.

The writers, lawyers and authors, are Adjunct Faculty at Lahore University of Management Sciences (LUMS)

Covid-19: economic impact measures