As with our earlier submission on the COVID-19 Pakistan Economic Plan, RSM International's and more particularly RSM Pakistan's purpose in the release of this article is similar. Specifically this article is to provide our valued clients and other interested parties a view of the impact of the governmental package for the construction industry.
It is also to alert them and all allied industries such as steel and building materials etc. to the opportunities that governmental ministries and agencies are offering as a way of combating the financial/business stringencies brought about by the CoronaVirus affliction.
Our government has justified the move by stating that the Construction Sector generates jobs for the most impacted such as the daily wage earners, many of whom have lost their livelihoods due to the current lockdown.
INITIATIVES FOR THE CONSTRUCTION INDUSTRY
Following are the various measures Government of Pakistan has taken to boost the construction industry and consequently the economy of Pakistan:
In an attempt to maintain a balance between a full lockdown and the minimum necessary economic activity to succor livelihoods the government has allowed the incentivized re-start of construction activity in the urban areas of Pakistan starting 14th of April, 2020.
At the heart of this measure is the stated aim of creating work opportunities for those rendered unemployed due to the outbreak.
- Status of Construction Sector
The Government of Pakistan is giving the status of industry to the construction sector.
- Investors in the Construction Sector
Investors in the construction sector during the current and the next fiscal year 2020-21 would not be asked any questions about the source of their wealth and they will be allowed to bring the investment onto their tax returns. This will act as a de facto Tax Amnesty Scheme.
Needless to mention that this is a huge concession and on its own will be at zero cost to the investor i.e. no tax to be paid to regularize this wealth.
- Construction entities associated with the Naya Pakistan Housing Scheme
Construction sector will be paying a fixed tax and if it is associated with Naya Pakistan Housing Scheme then 90% of that amount will be reimbursed. (Please see point 6, below, too.)
- Subsidy to Naya Pakistan Housing Scheme
A subsidy of Rs. 30 billion is being provided to the Naya Pakistan Housing Scheme.
- Selling of House in the FY 2020 and 2021
During FY 2020 anybody selling his/her principal residence will not have to pay Capital Gain Tax. Extension to FY 2021 is under consideration.
- Tax rate on the Construction Sector
Government had also decided to bring the construction sector in the fixed-tax regime under which the rate of tax on land and construction would be levied on the basis of per square yard and per square foot of property respectively.
Further the tax is to be paid evenly over the life of the project.
Please see point 3, above, too.
- Withholding Tax will be waived-off for Construction Sector (except Steel and Cement and the organized sectors)
Withholding tax on materials and services has been abolished and only formal sectors like Cement and Steel etc. would be subject to deduction of tax.
- Formation of Board
It has also been decided to establish the Construction Industry Development Board (CIDB) to help promote the construction industry in the country.
- Parameters of working
To make sure that CoronaVirus does not spread, government would specify the parameters of workings in the Construction Sector so that it did not involve close contacting. This is particularly true for mega projects to ensure that social distancing was nonetheless observed.
- Sales Tax
Following coordination with the provincial governments of Punjab, Khyber Pakhtoonkhwa and Sind it has also been decided to bring down the sales tax in the construction sector to 2% through the consolidation of all taxes.
Sundry further measures undergoing review
It is to be noted that several other concessions are being considered for approval. These are:
- provision of easier loans with low mortgage interest
- ease through the operation of a one-window facility in obtaining construction permissions etc.
- amalgamation of Federal and Provincial Taxes including Sales Taxes and Excise Duties
- introduction of a separate block of income for construction related earnings that have been taxed as aforesaid, point 6, above
- creation of separate Real Estate Trusts to ensure accountability to the minor investors/end buyers
- extension of time to June 30, 2022 in treating similar investments to the above, favorably
- re-evaluation of the property scale in the light of the current Covid-19 circumstances i.e. a downwards revision in FBR rates at the time of purchase/ sale of Real Estate
- capital gains tax exemptions and reliefs for first time buyers and for the shortening of holding periods for exemptions/reliefs
- relaxation of the ban on the construction of high rise buildings
- reduction in tax from 9% to 4% at the time of purchase of property.