The world has faced a surge of unexpected consequences due to the outbreak of Coronavirus. With the COVID-19 outbreak causing major economic disruption with severe impacts, various countries adopted various techniques to mitigate the effects of the pandemic and kick start the economy.
To overcome the economic impact of COVID-19 in Pakistan, Prime Minister Imran Khan had announced a relief package for the construction sector, which was aimed at stimulating economic activity and generating employment.
Predominantly termed as an agricultural economy, the construction sector is the second largest sector, contributing about 12-13% to the economy.
In a bid to stimulate economic growth, the federal government changed the status of the construction sector to industry, announced PM Khan as he unveiled the special relief package.
It is a sector that impacts millions of lives all across the nation. By bringing together several governmental and non-governmental departments, actors in the public and private sector that decide on how to impact not only the sector itself but also over 70 allied industries. This, in turn, kick-starts action for the entire value chain including various components like strategizing transport systems for delivery and accessibility, the workers including daily wage laborers, plumbers, technicians, builders, management of builders etc. and the availability and provision of essential construction material i.e. cement, sand, steel, paint, hardware etc.
By amending the Income Tax Ordinance, 2001, the federal cabinet fulfilled the longstanding demands of builders and developers through the announced incentives.
The incentives include:
- The federal cabinet approved an amnesty scheme under the incentive package, allowing the investors to invest in the sector without disclosing their source of income or proving the money-trail.
- Under the package, provisions of Section 111 have been exempted. This makes it easier to construct and sell a property for speculative/investment purposes.
However, the terms of exemption will only include projects that are commenced by December 31, 2020, and completed till September 30, 2022.
A project will only be considered to be complete if the grey structure has been completed till September 30, 2022, and the developer has completed landscaping by that time and constructed 50% sub-grade level roads on the project site.
This is to ensure the timely completion of projects and increase economic activity within the timeframe.
Exemption from Section 111 would be applicable for the developers only if 50% of plots for sale have been booked and up to 40% payments received till September 30, 2022.
- A fixed tax regime has been implemented, under which taxes are based on per square feet/yard.
- The government also waived off the withholding tax on materials in the construction sector except for cement and steel.
- By amending the Finance Act, 1989, a reduced rate of advance tax from 10% to 5% was introduced for sales of immovable property through auction.
Sales tax has been reduced in coordination with the provinces, with Punjab and Khyber-Pakhtunkhwa agreeing to reduce it to 2%.
- The cabinet also granted a one-time exemption on Capital Gains Tax for a residential house, measuring 500 square yards or less and/or in case of a flat of 4,000 square feet or less.
- To promote the industry, the federal government will establish a ‘Construction Industry Development Board’.
Being the second largest industry in Pakistan with unprecedented potential, through the construction industry the government aims to develop the sector, fill the gap and bring it at par with the existing market demands and generate employment.
This, in turn, raises a question. Considering the implications of the current package, will the measures be effective enough to bring about the urban growth the government aims for?
What Industry Experts Say about Construction Package
Here is what the Industry Experts say about the PM’s construction package to achieve pragmatic outcomes, in a webinar hosted by the Iqbal Institute of Policy Studies (IIPS).
“Since the inception of Pakistan, this is the first time that any government has realized the true potential of the real estate sector”
Shafiq Akbar | Chairman Imarat Group of Companies & IIPS
Acknowledging the government’s construction package, Chairman Imrat Group of Companies & CEO Graana.com, Mr Shafiq Akbar highlighted the existing gaps in the construction industry and the potential of the real estate in Pakistan to spur economic activity.
Being the second biggest employer after the agriculture sector, the real estate sector currently faces a housing shortage of 20 million houses that needs to be constructed until 2030 due to the rapid increase in population.
Pakistan’s construction industry sums over $50 billion, which makes up for 12-13% of the GDP, out of which the real estate sector contributes approximately 1/3 ($15 billion) of the total GDP. However, the economy and sector are both deprived of required funds due to the gap and unavailability of opportunities. This is where the role of Foreign Direct Investment comes in.
To attract large sums FDI and relieve the burden, around 20-25 smart cities, over 20 new tourism spots and commercial expansion are a must that invites global investors. These initiatives will not only boost the economy but benefit the allied industries and create numerous job and investment opportunities in various sectors.
“This facilitation in waiving off the unnecessary taxes will help in creating economic stability and change the mindset of the private stakeholders in a positive manner.”
Lt. Gen. Haroon Aslam | President IIPS Advisory Board
Adding to the debate, Lt. Gen. Haroon Aslam signified the role of academia, as it is very important to make the construction industry successful.
Academia can be made an active feeder for the construction industry to bring research-based and innovative solutions for critical problems in various areas. It opens new fronts of pragmatic policies that can be implemented to bring about the required economic stability.
“Energy-efficient housing will create an impact only when it will be implemented on the existing stock of buildings which are large in number. There needs to be a policy in this regard which we have not yet confirmed.”
Zaigham Rizvi | Chairman Naya Pakistan Housing Scheme
Given the current scenario, the need for low-income housing is incremental, stressed Mr Zaigham Rizvi.
He termed the announced construction package as a ‘supply incentive package’ that will play a vital role in spurring economic activity. However, in order to boost economic growth, he emphasized the financial institutions to come forward and announce a ‘financial incentive package’ that compliments the construction package.
By doing so, they hope to incorporate and construct energy-efficient housing schemes in Pakistan.
In addition, he stressed the need for the approved provincial agencies to play a role in facilitating the local registration of companies to ensure standardization.
“Pakistan is now the fifth most populated country. Every year approximately 4-5 million people are added to our current population, which means that every year we need another city. This depicts an incremental need for housing.”
Khurram Farid Bargatt | Member IIPS Advisory Board
While commenting on the matter, Mr Khurram said that under the strategic and regional plans, small area and subject plans should be promoted.
“It is a great accomplishment that real estate is getting into refined shape as we experienced in previous years and mishandles real estate which created ways and means to allow irregularities and fraudulence.”
Sheikh Muhammad Imran | VC Lahore Development Authority
Muhammad Imran aligned his vision of empowering the private sector to remove the barriers that hinder growth, in order to fulfill the PM’s vision of making Pakistan a self-sustainable and economically strong nation.
In order to achieve this, the authority will work to change the policies and regulations significantly to bring ease in conducting business.
In addition, he also emphasizes on replacing the socialist mindset of the people with a capitalist approach to stimulate and expand the private sector that creates more job opportunities in the coming times.
He informed that the LDA has approved various regulations. For high-rise residential properties, a ceiling height limit has been set, whereas, for commercial high-rises, the limit will depend on the plot size and the abetting road.
In a summary submitted to CM for approval, the authority will approve a housing society within 45 days, map and design reports of low-rise residential housing will be approved within 30 days. The authority is currently working to approve High-rise buildings within 30 days as well.
To achieve urban growth through the construction package, the activity must start at the frontline, expressed Mr Muhammad Imran.
“With the introduction of the construction incentive package, the ball is now in the court of the private sectors. It is time to show what the private stakeholders are able to do for the country.”
Akber Sheikh | Chairman ABAD
In order to benefit the construction incentive package, the private sector and local regulatory authorities will have to come forward and work together.
An important outcome of the incentive package in the establishment of the ‘Construction Industry Development Board’.
This board will be a focal point, which includes people from all forefronts of the construction industry like builders, developers, consultants, architects, material suppliers, contractors, etc. to provide a platform where opinions, issues, and developments can be voiced easily.
Furthermore, if the government in assistance with the private sector sketches and approves a master plan of all the cities, it can serve the purpose of a Real Estate Bible.
“We have to change our courses and update them with new policies and new technologies to empower the engineers, architects and town planners.”
Kalim Siddiqui | Chairman PCAPTA
It is a great accomplishment that the real estate is being refined into shape through this long-awaited incentive package.
Mr Kalim further stressed on the need for a National comprehensive development policy, which should be strategized after the development of the CIDB. The CIDB will play an important role in bringing various actors in the construction industry together. This, in turn, will pave the way for the development of a ‘spatial development plan’.
Highlighting the prevailing issue of rural-to-urban migration, he insisted on the need to adopt a bottom-to-top approach to strategically assemble provincial development schemes, regional plans and major cities and towns’ subject plans. By adopting a national policy for urban development, the focus should now be to mitigate mass migration to urban centers, ease the burden, and focus on regional urbanization of rural places.
“This positive step by the government during a time when the economy is badly stricken by COVID-19 will help in bringing the investments back to the country and boost the SME segment which is the backbone of the economy.”
Javed Afzal | Provincial Chief SMEDA
Underlining the significance of the SME sector of Pakistan, it was revealed that the SME sectors contribute 40% to the GDP, makes up 30% of the exports and offers 78% existing job opportunities.
Given the outbreak of the pandemic, it is an essential time to work for the development of SMEs in Pakistan, along with catering to the construction industry to create a favorable and an enabling environment and boost employment across the nation.
By hosting an elaborative discussion on what our Industry Experts have to say about the PMs Construction package, the industry deeply acknowledged and appreciated the incentive package that will help ensure long-term economic, socioeconomic and social impacts.
As they recognized the government efforts to overcome the difficult choices in these challenging times, by supporting the construction industry incentive package, our industry leaders stand united to fully support and to cater to the vulnerable groups and segments of our society deeply affected due to COVID-19.