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Construction Industry Package Details & Review

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Prime Minister Imran Khan has announced a special Construction Industry Package today. The key points of the package are as follows:

  •  No question would be asked regarding the source of income source for people who will be investing in real estate until June 20.
  • The government has introduced the fixed tax regime for builders and developers.
  • Taxes will be calculated on the basis of construction per square foot and the development of land per square yard for builders and developers.
  • Tax rates will be reduced by 90% in the case of low-cost houses or projects developed under the Naya Pakistan Housing.
  • Builders and developers do not need to withhold taxes on the purchase of construction equipment other than cement and steel.
  • Sales tax on construction services in KPK and Punjab will be reduced to 2%.
  • Capital Gains will not be taxed on the sale of the house by the family.
  • Subsidy of PKR 30 billion will be given for Naya Pakistan housing scheme
  • The construction sector has an industry status.
  • A board for construction Industry Development would be established.

 

Following are the details of the proposed special incentive package for Construction Industry:

Incentives by FBR
1. Special Tax accessibility for Developers and Builders.
Introduction of a Fixed Tax Regime for builders and developers in accordance with the draft already prepared by FBR (in consultation with NAPHDA and representatives of construction industry/association of builders and developers), including following salient provisions:-

a. Income under this regime will be treated as a separate class of income, wherein tax shall be computed on the basis of per square foot construction and per square yard land development for builders and developers respectively.
b. Builders and developers shall not be required to withhold tax (under section 153) on purchase of building material except for steel and cement and on services (such as plumbing and shuttering etc), other than those provided by companies.
c. While declaring their net wealth-builders and developers will be eligible to take credit / impute income equal to 10 times of tax paid under this schedule.
d. In case of low-cost housing and/or projects developed by NAPHDA, the laid down tax rates will be reduced by 90 percent.

2. Exemption from provisions of Section 111 of Income Tax Ordinance 2001, on Construction Activity till June 2022.
The provisions of Section 111 shall not apply if an investment is made by any person from now till 30 June 2022, on purchase of land and constructing any structure (house, commercial building etcetera) on the same in the said period, constructing any structure on already owned land within this period or first purchase of newly constructed property within this period. The amount of such
investment, within the given period, will be allowed to be incorporated in wealth statement.
3. Rationalization of Capital Gains Tax (CGT)
a. The rate of tax is reduced in accordance with / proportionate to the increase in the valuation table.
b. CGT holding period for the constructed property is reduced from 4 years to 3 years (as was the case prior to 2019).
c. CGT holding period for real estate/plots may remain 8 years, however, the rate of tax may be significantly reduced on sliding scale from the fourth year onwards.

4. Valuation of Real Estate / Plots

FBR has already initiated the process of fresh valuation of urban real estate in consultation with the real estate organizations of respective cities. The process needs to be expedited in the wake of the current situation.

5. Rationalization / Reduction in Sales Tax on Construction Material

In order to bring down the cost of construction, sales tax and excise duties levied on construction material need to be suitably reduced.
6. Exemption of Taxes on First House

Construction, purchase/sale of the first house should be exempted from all taxes, including capital gains tax.

7. Establishment of Special Circles

FBR to expedite the establishment of already approved automated special circles for the construction industry to ensure easy and transparent tax collection.

TAX INCENTIVES BY PROVINCIAL REVENUE AUTHORITIES (PRAs)

8. Sales tax on builders and developers at the time of sale of the property be levied by all provinces and ICT at fixed rates of Rs 50 per square foot for builders and Rs 100 per square yard for developers (as already being done in Sindh and KPK).
9. Sales tax on construction services be exempted by all provinces, provided the builders and developers are chargeable to sales tax at fixed rates mentioned above, at the time of sale of a property.
10. Low-cost housing by NAPHDA / provincial housing authorities be completely exempted from provincial sales taxes by all provinces.
11. All Provincial and Municipal taxes/duties/fees/levies/charges on transfer/registration of urban properties to be clubbed under one head and charged at the rate of 2 percent of valuation.
12. E-stamping system being introduced by all provinces in line with the system already introduced by Punjab needs to be expedited.

MEASURES FOR CREATING EASE OF DOING BUSINESS BY PROVINCES

13. The process of fresh master planning/updating of existing master plans and zoning already initiated by provinces may be expedited.

14. Reduction in project approval time (preferably to 45 days), by all provincial governments’ respective development authorities, through reduction of NOCs, automation and concurrent processing of approvals, strictly in accordance with laid down timelines. Wherever possible NOC regime be replaced with compliance of bylaws regime (after introducing fresh zoning bylaws).
15. All provinces/development authorities are in the process of introducing fully automated one window portals for processing approvals and all other client services/facilitation. The same needs to be expedited.
16. Policy on high rise construction has already been approved by the PM. Notification to this effect has been issued for Islamabad Capital Territory, however the same has yet not been issued for other major cities / urban areas.

STATUS OF INDUSTRY TO CONSTRUCTION SECTOR
17. Prime Minister has already approved the status of the industry for the construction sector. However, the implementation of this decision was pended until the next budget on the recommendations of the Ministry of Commerce and FBR. In the present situation, this
decision may be implemented forthwith.

HOUSING / MORTGAGE FINANCING
18. In line with a 7% interest rate offered to Industry for Greenfield Projects, subsidy / lower rates (preferably 6%) be afforded for housing mortgages of one hundred thousand low-cost housing units, construction of which is planned to be initiated in the current
year.

LEGAL ISSUES – CIVIL PROCEDURES ORDINANCE / SPECIAL BENCHES

19. Ministry of Law and Justice is working on a civil procedures ordinance for ICT, which after approval will be shared with Provincial Governments, for implementation in all provinces. The Ministry is also working on the constitution of special benches for hearing civil disputes/cases concerning the real estate/construction sector. Implementation of these measures needs to be expedited.

Review about Construction Package :

Overall, we believe it’s a comprehensive and wonderful package that will give a new soul and spirit in the Real Estate Market. Builders & developers will get benefits from this package. The package will create a lot of job opportunities as well as business activities which will ultimately help Pakistan’s economy in such difficult times. Once this lockdown is over, we will see positive trends in terms of prices.

Other domains will also get benefits from this package directly or indirectly such as trading, house construction, & long term investments. The package as a whole determines the direction of the real estate industry for the future. The government believes that the construction in commercial sector can play a vital role in booming the current economic situation. Therefore, government policies also favor those projects which have the potential of creating job opportunities and bring growth to other associated industries. This package is also one of the government’s attempts to bring the billions of dollars lying around in black to the economy of the country to tackle the current difficult situation.

Another positive aspect of the package is that despite it hasn’t brought any major relief for investors who are looking to invest in plots of under developer areas, but they will certainly get benefits considering the tax relief. This move will also ensure the uninterruptible developments of housing societies across the country.

This package was the need of time, and we are sure that it will not only change the face of Pakistan’s real estate industry but also help our economy to come out of the current hard time.

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