Three Pillars of Investment Budget

Nowadays, the bang of the concept of investment budget is heard from almost each and every corner of governmental and private circles in respect of federal budget for 2004-2005. Suggestions are appearing in almost every day’s newspaper for the consideration of strategic and tactical level economic managers. The crux of such suggestions is either based on specific fiscal laws or related to specific business sector of the country. In the concurrent scenario, it seems necessary that government should consider the three pillars of investment, that is, land, labor and capital. This article is an endeavor to unearth the concept attached to these three pillars of investment and suggested broad policies to be reflected in fiscal laws for the achievement of strategic goals.


It is a piece of Land which has been obtained on 14th August, 1947, namely Islamic Republic of Pakistan. The concept of acquiring such piece of land is to practice the values attached to the religion, namely, Islam. It is worthwhile here to note that the conceptual pillars of Islam has not become obsolete with the passage of time, hence, we cannot use the term modern Islam. The values attached to the word Islam are social justice, welfare and brotherhood, apart from many others and our fiscal laws must be a reflection of some of those values.

Mussolini once asked Allama Iqbal for a unique idea. Allama Iqbal told him that you should give admission to Muslim students in your universities so that you could become closer to the Muslim states. He said, “I asked for a unique idea”. Allama Iqbal replied that you should restrict the population of a city due to the concept of scarce resources and once the limit is achieved, build a very new city. Mussolini was astonished and asked, “Is this your own idea or construed one”. Allama Iqbal replied, “Our last prophet (PBUH) has said this centuries ago”.

The federal government must obtain proposals from each and every provincial government to spare new areas for industrial zone. Such industrial zones should be exempt from income tax, at least for five years, subject to the strict condition of maximum local employment for every type of industry. The new industries must not purchase the used second hand machinery within Pakistan, that is, which have already been used in Pakistan. For this very purpose, a clause similar to clause (120) of Part I of the second schedule of Income Tax Ordinance, 2001 needs to be incorporated. Any concentration over a specific area may become a prove of disparity among provinces.


An economist calls it labor while professional accountants around the globe call it intangible human asset. The sanctity of a labor is evident from the preaching of Islam. The last prophet (PBUH) said, “Pay the dues of a worker before his or her sweat becomes dry”. As far as the lady war prisoner workers [londi] are concerned, the last prophet (PBUH) said, “The most respectful among you is the one who makes the lady war prisoner worker embrace Islam and marry her”.

The essence is to make a person respectful, feel dignified in respect of his profession or vocation and compel the employer not to put cumbersome work burden. It seems necessary that government should set up a regulatory authority, namely, national vocational qualification. Specific business sector industries in remote locations are encouraged to set up training institutes for the local community and the expenditure on such institutes be allowed as a direct tax credit. Section 27 of the Income Tax Ordinance, 2001 needs to be amended and brought under the direct tax credit category. Corporate sector is basically discharging its ethical corporate social responsibility by building either a hospital or a training institute which is government’s obligation.

Income Tax Ordinance, 2001 terms the labor or intangible human asset as salaried class. The salaried class is the most mishandled class under the present taxation of income system. The middle economic managers [Central Board of Revenue high ups] has omitted the deduction and tax credits in respect of children education allowance, books allowance and legal allowance at the time of switching over from Income Tax Ordinance, 1979 to Income Tax Ordinance, 2001. In furtherance, the cost of life of a salaried person has been set at 30% and 10% or Rs30, 000.00 [whichever is lower] of the salary received.

These factors create panic or irritation among the salaried class and they are bound to consider the term tax as pay for nothing. Government should re-introduce children education allowance, books allowance and legal allowance. In furtherance, a personal training allowance needs to be introduced so that our intangible human assets could become competitive in the international market having flair to update them in the ever changing world and medical allowance need to be allowed on actual basis.

The hit of the toe of Income Tax Ordinance, 2001 over salaried person earning Rs600, 000 or more per annum is the worst of its kind. All the allowance, except mentioned in part I of the second schedule of Income Tax Ordinance, 2001, are taxable on achieving the earmark of Rs600, 000.00. It is suggested that if all the allowances are taxable for such class then deduction of respective expenditure needs to be allowed. For instance, an employee should be allowed to deduct the house rent (actually paid) from the house rent allowance, conveyance expenditure in discharging official duties (actually paid) from the conveyance allowance and so on.

The middle economic managers [Central Board of Revenue high ups] must not be worried about the impact of shortfall over the revenue due to such suggested amendments but do consider the fact that new taxpayers would come under the tax net and may increase the tax revenue times than curtailed through such measures. In furtherance, labor intensive industries need special consideration and require a separate kind of tax incentives which include welfare concept of workers.


The wealthier people are always an asset of any estate. It is Hazrat Abu Talib, Hazrat Abu Bakar or Hazrat Umer, they all deployed their whole wealth and influence for the safety of the community and state. This universal truth is also evident not from the history of independence of Pakistan but also from the May 1998 restriction scenario, apart from other events. Currently the government is actively pursuing the policy of bringing foreign investment but has lost their eye over the sanctity of investment already been made by the local and foreign investors.

Government should consider the fact that new foreign investors normally contacts the local and international investors, who have already made the investment, for obtaining the know how of current scenario and policies towards them. Any negative response may prove the policy of bringing new foreign investment a futile exercise. Hence, any policy aiming towards bringing new investment must be aiming at the protection of current investors and harmonization of new policies for existing and prospective investors. Government should consider why the local investors are setting up their industries in GCC and other countries.

The cumbersome legal procedures having no distinction of compulsory legal service or slavery in case of withholding tax agent, the rule based indirect taxation [Sales Tax Act, 1990], taxation on capacity to produce and professional tax are the harshest example of corrupt infected fiscal laws. The business community is unable to set their strategic goals due to the amendment in laws and amendment in rules overriding the basic laws even, by the middle economic managers [Central Board of Revenue high ups] in the shape of SRO’s, notifications, circulars etc, apart from failure to consider the impact of more than one tax at a time. The long legal battles won by the business community on principal basis are normally been nullified through the amendments in fiscal laws.

The core reason is that both politicians and economists have long searched for a set of principles to guide tax policy. Several centuries ago, the French statesman Colbert suggested that the art of taxation is the art of plucking the goose so as to get the largest possible amount of feathers with least possible squealing [Armitage-Smith, 1907, P. 36]. Modern economics takes a somewhat less cynical approach, emphasizing how taxes should be levied so as to enhance economic efficiency and to promote a fair distribution of income.

The pillars of such a policy may include respect of existing and prospective investors by fulfilling the promises, not withdrawing exemptions at any earlier date, change of government officials behavior as consumer oriented, concrete measures to restore confidence, facilitation in case of cumbersome legal procedures instead of catching them a blank and finally strategic vision in case of investors instead of operational or tactical vision.


The concept of fair distribution of income generated from taxes is almost absent and there is not statistical data available to support such concept. Although the object of the government is the welfare of the people and the material progress and prosperity of a nation are desirable chiefly so far as they lead to the moral and material welfare of all good citizens. A nation may fall into decay through taxation in two ways. In the first case, when the amount of the taxes exceeds the powers of the nation and is not proportioned to the general wealth and in the second case, when an amount of taxation, proportioned on the whole to the powers of the nation, is viciously distributed. The annual revenue and expenditure statement of government of Pakistan lacks the depth. At least economic cum financial managers of Pakistan must take a bird’s eye view of a listed company’s financial statement containing notes to the accounts. It is acceptable that a certain level of expenditure is un-disclosable but still something may be disclosed to ensure the concept of transparency in the minds of the stakeholders – Citizens of Pakistan.

The larger the society provided it be within a practical sphere, the more duly capable it will be of self government. The practical sphere may be carried to a very great extent, by a judicious modification and mixture of the federal and provincial principle. Work to some extent has already been done through the local government legislation. It is suggested that funds collected sales tax on services needs to be transferred to the respective town administrations as per the local government laws.

In respect of land, federal government must obtain proposals from the provincial governments for the capital and labor intensive industries tax incentive schemes in the respective provinces. Any investment oriented budget must not be aimed towards pursuing new foreign investment but would also protect the existing investment already been made. The intangible human asset must be handled with care. Children education allowance, books allowance and legal allowance need to be re-introduced. Medical allowance need to be amended to allow actual expenditure. Person earning salary income of Rs600, 000 need to be allowed to deduct actual cost in respect of an allowance.

The author is an International tax advisor and teaching UK and Pakistani Taxation at various approved colleges of ICAP and ACCA. He is also a member of publication committee of ICAP. His articles on taxation and corporate law have been published in leading local and foreign newspapers and journals. He can be contacted at [email protected]

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