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Incentive Package for Construction Sector

Incentive Package announced by Government of Pakistan for Construction Sector is A Ray of Hope. Lot of hard work, out of box thinking and persistence by government machinery to continue walking the path will be the key ingredients to realize the dream of a thriving construction sector and resultant-ly a strong economy.
Construction and development sector acts as a major stimulus of economic activity in any growing economy. Same holds true for the countries like Pakistan, wherein businesses and investors have a history of investing in the real estate and construction industry.
In the following, salient points will be highlighted.

Key Features – Incentive Package for Construction Sector

  • No questions to be asked about the source of income for investments in the Construction Industry this year.
  • Construction Sector has been given the status of Industry
  • Introduction of Fixed Tax in the construction sector
  • Investment in Construction Projects under “Naya Pakistan Housing
  • Authority”, 90% fixed tax will be waived and only Pay 10% Tax
  • Withholding Tax on Construction Industry lifted from all sectors, except Steel and Cement
  • No Capital Gain Tax for Family House Sale
  • Fixed Tax Rates for Construction Sector – Charges Per Square Foot or Square Yard.
  • Rs 30 billion Subsidy to Naya Pakistan Housing Projects for stimulating construction activities
  • Reduction of Sales Tax for Construction Industry in coordination with the Provinces
  • A Construction Industry Development Board Set up
  • Rate of Tax Reduced Proportionate to the increase in the Valuation Table
  • CGT holding period for constructed property Reduced from 4 years to 3 years (as was the case prior to 2019)
  • CGT holding period for real estate / plots may remain 8 years, however the Rate of tax may be significantly reduced on sliding scale from fourth year onward
  • The investment made by any person on purchase of land and constructing any structure (house, commercial building etcetera) will be exempted from provisions of Section 111 of the Income Tax Ordinance 2001, (Applies for tax on the person concealed income)
  • In addition, besides, construction of any structure on already owned land within this period or first purchase of newly constructed property within this period will also be exempted from the same clause of income tax.

Effects on Construction Sector

The Incentive Package for Construction Sector details are being looked in to by various sectors with the purpose of understanding its effects on the country’s economy in general and for the construction sector in particular. The key element is

realization by the government that the policies in the recent past had negative impact on this important sector.  Now that government is seen taking the remedial measures, therefore, businesses and investors are seeing the light at the end of tunnel. As one see, the Incentive Package will have far reaching impact for the country as a whole, both in the short and long term domains.

Short Term Effects (April-September 2020)

The short term effects of the Incentive Package for the Construction Industry may be limited. The corona pandemic is taking a heavy toll on all segments of economy. The effects are sudden and economies world over were not ready for such a sudden global recession. It’s unlikely in the foreseeable future that the world will breathe normally. So is the case for Pakistan. The short term benefit for the industry, economy and general public is Ray of Hope. Lot of hard work, out of box thinking and persistence by government machinery to continue walking the path will be the key ingredients to realize the dream of a thriving construction sector and a strong economy.

Long-term Effects (2021 Onward)

The package holds policies and incentives which undoubtedly can trigger the construction sector. Few of the major aspects and effects are:-

  •  The investor confidence, which is the key for a successful business sector, is quite high. Government’s persistence with such policies is likely to accrue the dividends for the sector as well as overall economic growth.
  • Reduction in Taxes would reduce the cost of construction, hence more projects in public as well private sector are likely to be launched, hence creating jobs and opportunities for businesses as well skilled people.
  • The Status of Industry would bring the sector in the major economic fold and the related firms and businesses would get easy loans and benefits from the lending agencies and banks.
  • Small Firms and Businesses would also become more involved and would fill the gap between small and mega projects.
  • Mega Projects by the investors will attract investments from abroad specially the overseas Pakistanis are likely to be investing more in the mega projects, hence the pressure on currency is also likely to fade away, gradually.
  • The Inland Revenue is also likely to increase due enhanced number of projects and resultant activities.

Conclusion

The package is good…..very good. It’s only the way, how it is to be handled…..out of box solutions and thinking can make it happen.

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