Govt drafts Pera amendments to safeguard industrial investment

ISLAMABAD: The government is proposing drastic changes to the Protection of Economic Reform Act (PERA) 1992 and working on a mechanism to ensure that foreign exchange remitted from abroad enjoys full-fledged protection when invested in the industrial sector.

This proposal has emerged under the draft of the upcoming Industrial Policy, though its finalization remains contingent upon the assent of the IMF. With industrial growth stagnant for years due to a host of reasons, the government is now considering multiple options to revitalize the sector, generate higher exportable surpluses, and secure sustainable economic growth.

According to the draft Industrial Policy, which has already been discussed with Prime Minister Shehbaz Sharif, several legal amendments have been suggested to strengthen investor protection and ensure the unhindered repatriation of profits.

A key proposal calls for the insertion of a new section in the PERA Act 1992, explicitly prohibiting the retrospective withdrawal of fiscal incentives where investment steps have already been taken. The draft amendment states that any change to fiscal enactments that disadvantages prior investments would not apply retrospectively, ensuring that such investors acquire a vested right. To avoid ambiguity, the draft clarifies that once steps have been taken pursuant to a fiscal incentive, those investors shall be deemed to have secured vested rights.

Parallel to this, amendments have also been proposed to the General Clauses Act, 1897. A new clause under Section 10A is suggested, stipulating that the maximum time limit for record retention shall be ten years after the close of the financial year concerned. However, in cases where proceedings remain pending before an authority or court, the person or entity would be obliged to retain records until the final decision of the case.

For the Income Tax Ordinance, 2001, the government is considering the addition of a new sub-section within Section 111, which deals with unexplained income and assets. The proposal under Section 111(4B) would exempt foreign exchange remitted through regular banking channels—from FATF-compliant (non-grey/black) jurisdictions—and invested in industrial or manufacturing undertakings, provided a bank certificate is produced, from the purview of Section 111(1).

This proposed exemption has, however, faced opposition from the Federal Board of Revenue (FBR). The FBR argued that the current language of Section 111 is the result of intensive negotiations with FATF, and any dilution could create compliance challenges. Officials further contended that introducing such amendments might not be feasible while Pakistan remains under the IMF program. At the same time, they conceded that genuine businesses and investors do require easier mechanisms for conducting transactions without unnecessary hurdles.

In light of these concerns, it was agreed that the State Bank of Pakistan (SBP) and the FBR will jointly devise a practical mechanism to simplify the declaration of income sources. Such a mechanism would ensure smoother capital flows for industrial investment without necessitating immediate changes to existing laws.