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FIN623 Solution GDB No. 1 Fall 2012

FIN623  Solution GDB No. 1 Fall 2012

 Scenario

Energy crisis is one of the burning issues for government, media, people and businesses of Pakistan. The situation of electricity has been so exacerbated that industry had to face the toughest time now a days. Shortage in electricity production and keen interest of government for energy projects are vital reasons for investment in power sector. Different local and multinational companies find power sector a potential opportunity for their growth and want to invest in it for the better return at minimum risk.
Government wants to deal with the issue on priority basis through different strategies which may include Internal Borrowing, External Borrowing, Grants, Aids or Taxation. In your opinion, which of these mentioned strategies can be a better option?

Discuss the potential benefits of the selected strategy to support your answer?

Solution:

In my opinion “Taxation” strategy is the better option to overcome this issue. Taxation includes fiscal policy because taxes are important part of fiscal policy. Exemption from tax is available to power generation projects. The taxation policy should be such as to boost business atmosphere and not discouraging the investment environment.

Following are potential benefits of this strategy

  • Economic and social stability and development could be attained
  • Price stability could be attained
  • Increasing level of employment
  • Redistribution of income in form of services/expenditure etc
  • Influencing consumption patterns
  • Removal of deficit in Balance of Payment (BOP)

 

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