THE NEW SME POLICY

A step towards better business opportunities!

Overall, the new SME policy aims to strengthen the country’s industrial and manufacturing base, by extending facilitation and offering incentives to promote the growth of SMEs which, indubitably, are the backbone of the country’s economy. At present, there are around 5.2 million SMEs in Pakistan, representing over 99% of the total business in the country. They employ over 78% of the non-agriculture labour force and contribute 40% to national GDP and 25% to exports.

Experts opine that an SME-led economic growth is inclusive, sustainable and addresses the structural issues in Pakistan’s economy by widening production and exports base and increasing the pace of new enterprise creation. For the first time in Pakistan, an all-inclusive SME policy has been launched by the government that addresses all issues that hinder the development of SME sector together with a robust implementation mechanism.

The policy promises the provision of 19,500 plots (spread over 4200 acres of land) to eligible SMEs in easy installments. This is a good idea especially if the bulk of the land is allocated to high-priority future SMEs like those in the IT and IT-enabled services sector or agricultural innovation. And, it may start yielding the desired results – if not immediately, then sometime before the new policy expires in 2025.

Another special feature of the new SME policy is its focus on supporting women-led SMEs which would get a 25% tax rebate, in addition to all other facilities promised in the policy. But to promote women-led businesses, particularly in the SME sector, offering subsidies and tax-rebates is not enough; ensuring that women come forward to set up businesses and they get special incentives is more critical.

Back in August 2017, the central bank had launched a refinance and credit guarantee scheme for female entrepreneurs. In August 2020, it enhanced the refinance and credit guarantee limit under this scheme from the initially-envisaged amount of Rs1.5m to Rs5m. The central bank owes it to the nation to share the results of that scheme with the nation with all important details like the number of women entrepreneurs who got this facility, the total amount of refinancing and credit guarantee offered to them, and the sectoral and geographical breakups of the beneficiary businesses. There are two general reasons for the failure of any initiatives aimed at promoting SMEs, or for that matter any other segment of borrowers. One is that the details are not shared with the public, thereby blocking a deeper discussion on why a certain scheme did not work and the other is that responsibilities are not fixed in case a scheme fails.

The new policy addresses all the issues hindering the SME sector’s development in the country, such as unnecessary inspection that only adds to the cost of doing business. Under the policy, a no-objection certificate (NOC) is not required for start-ups and expansion to low-risk businesses, including the service sector, transport, wholesale, etc. The medium-risk SMEs including the light engineering, leather, auto parts, cutlery, sports goods, etc. will be provided with the NOC within 30 days, and if the certificate is not issued within that time by the relevant authorities, it is deemed that the NOC has been issued. And there is a limited segment such as those dealing in explosives, fire equipment, boilers, chemicals, etc. that are in the high-risk businesses category. Another facility under the policy is the abolishing of the government’s regulatory interference, including the “Inspector-Less Inspection Regime”. To eliminate harassment and bribes by the inspectors, a self-declaration by SMEs on regulatory compliance and an e-inspection portal to monitor and self-verification of on-site inspections visits have been introduced.” Mr Bakhtiar said: “We need to look into the reduction of over-regulations of the industries, mainly the SMEs, and the matter is under discussion with the provinces.”

The new policy also offers tax incentives to SMEs in the manufacturing sector by reducing the turnover tax rate from 1.25% to 0.25% for enterprises having an annual turnover below Rs100m, while the tax rate has been fixed at 0.5% for units with a turnover between Rs100m and Rs250m. Besides, the ‘Aasan Finance Scheme’ is being introduced under the new policy to ensure access of capital to the industries. Also, an amount of Rs23.5bn has been allocated to share up to 60% financial loss borne by SMEs. Venture capital regulations will be reviewed to support the growth of this sector for providing equity finance to start-up SMEs, including those in the IT sector. Market access regulations are being revised to allow greater SME participation in the public sector procurement of goods and services. In addition, the Trade Development Authority of Pakistan (TDAP) will ensure increased SME participation in international trade fairs and exhibitions. The SME policy has a special focus on supporting women’s entrepreneurship by attaining greater access to finance, awareness and training, while an SME registration portal has been launched to provide one-point access to all incentives available to these enterprises. Women-led enterprises have been given a 25% rebate in tax. The purpose of the policy is to facilitate SMEs and many facilities will be provided to the entrepreneurs at every step. The policy aims at facilitating business by getting rid of the complex and outdated system. To facilitate their integration into the mainstream, not only will the tax rate on them be reduced but also a transparent e-inspection system will be introduced which will reduce the discretionary powers of inspection officers and the possibility of harassment of industrialists.

The writer is a PhD scholar (English Literature). He can be reached at hbz77@yahoo.com