Industrialization plays a vital role in the economic development of countries as it raises career opportunities and ensures better utilization of local resources. The Government of Pakistan has been cognizant of the significance of industry amid recent health-cum-economic crisis and has taken proactive initiatives to promote and develop it.
The Government is offering a series of subsidies for electricity and gas to export-oriented industries. Power price has been fixed at US$ 0.07/unit for July-August FY2021 and US$ 0.09/unit for September-June FY2021. Gas tariff fixed at US$ 0.065/mmbtu for the whole FY2021. Power Division has assigned Rs 20 billion subsidy for this purpose. Furthermore, the government has taken a tremendous step through approving Industrial Support Package for industrial consumers of DISCOs and K-Electric.
According to the package, peak hours have been abolished along with reduced tariffs on additional electricity consumption. Power Division has allocated Rs 22 billion to cover this tariff differential.
Statistics showed that total Rs 1.24 trillion stimulus package was introduced to support economy during pandemic covid-19. According to the package, Rs 200 billion has been assigned to support business and economy. As of March 2021, Rs 146 billion has been disbursed counting Rs 100 billion refunds to exporters, which is an encouraging sentiment for export-oriented industries. The Government has removed RD and ACD on various items mainly raw materials by passing Rs 1.13 billion incentive to private sector like removal of 164 tariff lines of textile sector, removal of 5 percent RD on cotton yarn import and tariff reduction to 5 percent from 10 percent and removal of ACD on 152 tariff lines on raw material used in manufacturing sector. The Government of Pakistan has released Rs 7.5 billion during July-March FY2021 under duty drawback scheme of textile and non-textile sector, which is supporting industry. The Country exports have been liberalized under China-Pak FTA-II. Textile, prepared food, leather, chemicals and engineering goods are among the top priority items. Increased demand of these products will increase LSM.
he Government has also proclaimed a special package for construction sector which includes amnesty scheme, tax exemptions and Rs 36 billion subsidy (for 10 years) for construction under Naya Pakistan Housing Scheme. After witnessing enormous effects on construction and its 40 allied industries government has further enlarged tax amnesty and fixed tax regime till June 2021 and December 2021, respectively. Furthermore, the government has granted massive tax exemptions (FED and ACD) to facilitate Electric Vehicles (EVs). There will be only 1 percent tax on import of EV parts while import of plant and machinery for EVs manufacturing would be duty-free.
The experts recorded that mobile device manufacturing policy has been approved to promote local manufacturing and assembly of mobile handsets. Statistics showed that the country enjoys low cost labor advantage, a reasonably large home market having greater than 178 million subscribers which have increased almost 1.0 percent per month during last 1-year, 83.3 percent tele-density and efficient device identification registration and blocking system in place, which make Pakistan an attractive market for mobile assembly. To boost manufacturing sector during July-March FY2021 various measures have been taken by State Bank of Pakistan (SBP) which are as follows.
Temporary Economic Refinance Facility (TERF)
TERF was launched to stimulate investment both new and expansion/Balancing, Modernization and Replacement (BMR) of existing units. Financing under the facility is available for all sectors across the board except power sector. Maximum loan limit per project is Rs 5 billion @5 percent p.a. As of April 01, 2021 Rs 690 billion has been requested under TERF against which Rs 435.7 billion has been approved. The scheme has been ended in March 31, 2021.
SBP Rozgar Scheme
Financing under this scheme was provided @3 percent p.a. for taxpayers and 5 percent p.a. for nontax payers. Under this scheme, Government of Pakistan provided 60 percent risk sharing for SMEs with sales turnover up to Rs 800 million and 40 percent risk sharing for small corporates with sales turnover up to Rs 2 billion. Under this scheme, more than Rs 212 billion has been disbursed. The scheme assisted to prevent layoff of 1,677,806 employees of 2,683 businesses, wherein 382,673 employees of SMEs and small corporates were prevented from layoffs.
Refinance Facility for Combating COVID-19 (RFCC)
RFCC enhanced the capacity of health sector of the country to deal with health emergency. Maximum loan limit for setting up of new hospitals is Rs 1,000 million while end user rate is 3 percent p.a. Tenor of the facility is 5 years. As of March 25, 2021, Rs 16.7 billion has been requested under RFCC against which Rs 10.5 billion has been approved.
Refinance Schemes for Export Promotions
To facilitate export-oriented industries during COVID-19, SBP introduced some relaxations under EFS and LTFF. Six months additional period was allowed for making shipment/performance under EFS with a 1.5 times export performance. Eligibility criteria for availing LTFF relaxed from US$ 5 million or 50 percent exports of total sales to US$ 4 million or 40 percent exports of total sales from Jan-Sep 2020.
Mandatory Targets for Housing Finance
SBP has assigned mandatory targets to banks requiring them to increase their housing and construction of building loan portfolios to at least 5 percent of their private sector advances by the end of December 2021. The Housing and construction finance of banks has witnessed a rise of 30 percent in less than a year.
Mark-up Subsidy Scheme for Housing Finance
Under this facility subsidized financing is provided to individuals, who currently do not own a house, for construction of houses or purchase of a new house. Government has allocated Rs 36 billion for payment of mark-up subsidy for financing over a period of 10 years.