Even before the coronavirus issues, the government had been gearing to introduce a construction-sector package to incentivise the sector since it had promised to build 5 million homes during its tenure. At the same time, the natural focus on selling and buying plots meant that the construction industry did not attract the same levels of investment as the plots. This had to be changed, some people argued. For real estate activity and investment to fully contribute to the economy, the construction industry needed to be empowered. Hence the government’s plans to introduce the incentive package.
More recently, the coronavirus situation and its impact on
the economy, and, even more adversely, its impact on the lives of the
vulnerable sections of society, has also likely pushed the government to take
action. Thus, in his address to the nation on Friday (April 3), Prime Minister (PM)
Imran Khan announced several measures to incentivise the construction sector.
Prime Minister’s Construction
Incentive Package
One of the first things that the PM revealed was that the
construction industry will be opened from April 14. This was a critical move,
especially in light of the various issues plaguing daily wagers during the
ongoing viral pandemic. These individuals have been affected the most by the
government-imposed lockdown and needed some relief.
Some of the additional measures for this construction-sector package include:
No question on sources of investment in
construction sector this year
Fixed tax regime for construction sector to be
applied on per square foot/yard of construction, which effectively means lower
taxes for real estate
Taxes on construction in the Naya Pakistan
Housing Programme (NPHP) to be further slashed by 90%
Withholding Tax on materials and services to be
waived except for cement and steel industries
Sales Taxes to be reduced in coordination with
the provinces
No capital gains tax on the sale of a family
home
PKR 30 billion in subsidy for the NPHP
Construction sector to be given ‘Industry’
status
A ‘Construction Industry Development Board’ to be
developed for regulation and promotion of the industry
Short-term Measures: Providing a
Short but Quick Boost
Of the various measure announced by PM Khan, most are aimed
at helping the national economy, developers, builders and daily wagers in the
short run. As a result, the construction sector is expected to be opened for
business in about a week, and a host of taxes have been removed to encourage
investment. Additionally, the cherry on top is that for the remainder of the
year, no questions will be asked about sources of income of property investors.
Furthermore, not only have the taxes been waived at the
federal level, but the provinces have also reduced their taxes. Just recently, the
Punjab government announced extensive tax relief measures worth PKR 18 billion.
A significant number of these had been aimed at the construction sector; with
the following particularly significant:
Reduction of Capital Value Tax (CVT) and Stamp
Duty from 6% to 2%
Suspension of service sales tax on construction
sector
Now, the PM has also alluded to these measures in his speech. Effectively, all these steps provide a carte blanche for people to pour their investments in to the construction industry. In fact, investing in the NPHP is even better as it requires only 10% of the requisite tax to be paid.
These measures are nothing short of an amnesty scheme, which
allows the investors to regularise their funds and assets without much hassle
for a period of several months — at incredibly low taxes. In turn, this should
help provide a boost to the construction sector.
Industry Status: Regulating and
Promoting the Construction
The government has coupled the abovementioned measures from construction-sector package with announcements that will truly boost both the economy and the construction sector. The most critical one is the provision of an industry status for the sector. This has been a longstanding demand of all the major builders and developers in the country.
While PM Khan has so far only announced that a Construction
Industry Development Board will be established (aimed at promoting the construction
industry), a number of other benefits are also expected to be announced. These
include:
The construction industry will be able to obtain
loans at KIBOR rates
The industry will have access and representation
in chambers of commerce and industries. This will certainly help resolve a lot
of issues faced by the real estate and construction industries
Industry status will lead to better
documentation that, in turn, results in a more efficient approval system for
construction projects — boosting businesses in the sector
A more stable and regulated construction sector
means dependable and more trustworthy companies
Industry status also allows companies in the sector to create an extensive portfolio. Additionally, they will be able to join the stock exchange, sell shares, and generate funds through this method — resulting in a significant rise in the number of real estate firms on the stock exchange.
Pakistan’s real estate sector and, by extension, the construction industry has been at a bit of a standstill for quite some time. The taxes had been rising and there was no relief in sight to counter-balance this trend; but now, compensation has finally been provided. Not only will this construction-sector package provide a short-term boost to the construction sector and its numerous associated industries (and perhaps even the entire economy), it will also help in extensively stabilising, regulating, and promoting the construction sector in the long run.
Excellent step forward by PM IK
On this occasion, this is good news in Pakistani companies, developed the first place in Pakistan, it is good decisions,,,,
In nut shell, what is the impact on construction cost beside buying and selling property?