LAHORE: Last year the target growth sate set in budget for industry was 6.4% and the actual figure surpassed it by a small difference at 6.8%. This can be majorly attributed to the upsurge in the construction sector which almost doubled the growth rate for the previous year which was nearly 3.5%.
Overall, many sub-sectors in the industrial sector showed noticeable improvement including leather products which grew by more than 10%, automobile sector which saw an increase of almost 23% and fertilizers which grew by 16%. In addition to these rubber products, chemicals, cement, pharmaceuticals and mineral products also showed notable growth. Construction sector grew by more than 13% and became one of the driving factors of the industrial growth.
All this paints a hearty picture for Pakistan’s industrial sector but it does not nullify the fact that Pakistan had not been following any set industrial policy for a decade and a half. Sometimes a tariff policy is implemented and at others the industrial programmes are designed and implemented on a whim and on a short-term basis. Many industrial tycoons have also tried to introduce a consistent industrial policy in the country but there had never been any solid strategy for our industries to follow.
The first time Pakistan experienced a proper industrial strategy was in the sixties when green revolution happened. In early nineties also, some industrial policies were in place but currently there is no evidence for any such theorem governing the industrial sector of Pakistan. Frequent changes in the centre and fluctuating tax policies are other factors responsible for the fluctuations in the industrial sector’s growth and performance.
Stock market: Engine of economy or source of tax revenue
One reason to be upbeat about Pakistan’s stock market is that it is not directly affected by the changing economic dynamics over the globe. Other sectors like industry and banking are often hit by the international economic fluctuations more adversely than our stock market but stock markets have almost always appeared to survive the troughs in the business cycle of the global economy. Therefore the estimates drawn for the stock market for budget are fairly accurate.
Traditionally, reduction in taxes have always spelled success for the stock market, however, being one of those sectors that are a success, it is also one of the major sources for tax revenue for the government.
The first budget that Pakistan Muslim League-N (PML-N) government announced did well for the stock market. The budget for FY 2013-14 reduced corporate income tax by one per cent (from 35% to 34%) and promised to continue to reduce it by one per cent for four consecutive years. This boosted the investors’ confidence in the market and led to a major increase in investments. It was somehow damped by the announcement of increase in turnover tax rate from 0.5% to 1% but still the positive effect overweighed and the stock market started to grow.
In the following year, the capital gains tax (CGT) grew from 10% to 12.5% but the securities being held for two or more years were exempted from CGT. The budget for FY 2015-16 however did not bring much of good news as CGT was increased and an additional levy of 7.5% was also introduced. Equity market also came under brunt as tax rates on dividend incomes were also increased. This year the budget had left the stake holders in confusion as to what direction the upcoming budget will steer the market toward.
Stock markets have traditionally performed well in the country and even though this sector makes up for a major and consistent source of revenue for the government, a balance in the taxes and revenues is necessary for the proper and successful functioning of the stock market. The proficiency of the government would hence be to strike that balance and making it beneficial for the investors, businesses as well as the national exchequer.
