The amended finance bill presented on Jan 23, 2019 has finally been passed after six weeks of deliberation. The bill was by no means for boosting revenue generation, and was aimed to expand the domestic supply. (read "Asad's sentiment booster" published on 23rd Jan, 2019).

The benefits of measures would start coming up in the next two years. Based on market pulse, textile players are planning to expand; and those operating in retail business are eyeing for domestic SME supply of intermediate goods which were earlier being imported from China. With currency adjustment and crackdown on under invoicing, domestic market supply is becoming viable. The problem is in SME capacity - the demand is generating, and the steps taken for SME will help boost supply.

The relaxation of non-filers buying locally manufacturing cars to all engine capacities is one addition. The discrimination of filers and non-filers is encouraged in the space, as it gives incentive to file. But there is another angle worth exploring - the absolute restriction significantly slowed down both markets which is not good in an otherwise slowing down economy.

The restriction on non-filers was imposed by the previous government (MIftah) and Asad was never in favour of it. In his first mini budget in Oct 2018, he tried to abolish it, but was cornered by the Senate. This time he has done it smartly - first non filers were allowed to buy up-to 1300 cc, and now the condition is relaxed for all domestically produced cars.

Yes, the PBC has a strong influence, and these auto assemblers are the beneficiaries - stock prices of auto companies were at the upper circuit yesterday. But the restriction was adversely affecting the overall economy as around one fourth of the car sales volumes are in over 1300 cc, but in terms of value, the contribution would be around half of the overall auto sales.

The step will help boost car sales which will improve the economic growth and since around one third car sale prices goes in government taxes, the FBR revenues may have some positive impact too. Additionally, government has increased the duty on higher capacity engines- 10 percent FED is imposed on 1700 cc plus cars. It's a smart move as 1800cc cars are registered as 1799cc, and now these cars will be expensive by 10 percent - for instance Honda Civic price will be roughly increased by Rs300 thousand.

The differential of WHT between non-filers and filers is maintained which will incentivize a few to file and rest would pay higher tax to government. Thus, to boost tax revenues, and appease foreign investors, the restriction is abolished. But what about the domestic investor? What about loads of liquidity stuck in real estate?

If the decision is taken on the principle that anyone in the country has a right to buy assets irrespective of taxes he pays, let it be across the board. Nonetheless, this space is not in favour of not penalizing the non tax payers. But not every non-filer is a tax evader, and not every filer is a tax payer. Within tax filing in FY17, 26 percent increase is amongst zero return filers. (read: FBR FY17 directory: ‘zero’ sum game, published Mar 4, 2019).

If the decision is taken on premise to not choke the economy, the issue is more pronounced in real estate sector. The transactions in real estate nosedived and thousands, if not more, of real estate agents are almost earning nothing.

Asad's punch line is to work on domestic supply expansion - diverting the investment in domestic industrial and other production and related services. But large chunk of wealth is stuck in real estate and without bringing that to productive sector, the economic revival is hard to come by.

According to a private equity group’s calculations, about 10 percent of country's GDP is in real estate. And stopping real estate transactions has depressed the construction sector as well. How can the government come anywhere close to its housing targets without opening up the sector?

But it is not easy to open up. Real estate is a provincial subject and FBR has already intruded by having FBR valuation table. All the investment in real estate is grey. It is imperative to have provinces on board and have a unified taxation collection both for federal (WHT) and provincial transaction tax. There is a need to work on having one valuation which should be based on real value.

The other problem is that government wants affordable housing sector to grow and for that low real estate price is good. But that may not work, as without transactions, it does not matter. Economy churns by transactions. It is Econ 101.

The government is confused on the matter, but the PM wants a solution. The government is also working on a fresh amnesty scheme. Expect real estate filer and non filer distinction to end or be reduced in upcoming budget.