Incentives announced by Pakistan for Construction Industry

Prime Minister Imran Khan on Friday announced a relief package for the construction industry in order to increase employment opportunities in the country. Announcing the package in Islamabad on Friday, he said those who invest in the sector will not be asked questions about their source of income. Many incentives announced for the construction sector, especially tax benefits for construction and allied industries. For the first time in Pakistan, construction sector is going to be turned into a formal industry, hence, a Construction Industry Development Board (CIBD) will be created in order to promote construction activities in the country. This board will operate under the supervision of the Federal Government and it will design policies to streamline the intricate procedures faced by developers and builders.  Following are the main points of the Incentive Package for Construction Industry:

Incentives By FBR 

1. Special Tax Provisions for Builders and Developers.

Introduction of a Fixed Tax Regime for builders and developers including the following salient provisions:-

1. 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.
2. Withholding tax has been repealed on construction materials and services except Steel and Cement which are formal industries. Builders and developers shall not be required to withhold tax under section 153 of the Income Tax Ordinance, 2001 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.
3. While declaring their net wealth, the builders and developers will be eligible to take credit / impute income equal to 10 times of tax paid under this schedule.
4. Those builders and developers who launch their construction projects under Naya Pakistan Housing Scheme / low cost housing or projects will be given 90% waiver on tax.

2. Exemption From Section 111 of Income Tax Ordinance, 2001.

The provisions of section 111 of the Income Tax Ordinance, 2001 shall not apply if investment is made by any person from now till June 30, 2022;

• on purchase of land and constructing any structure like house, commercial building etc.
• 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 taken in wealth statement. Those builders and developers who invest in construction sector for this year will not be asked about their source of funds means whatever their source of investment be, they will not be answerable to FBR for this year.

3. Rationalization of Capital Gains Tax (CGT)

• Rate of tax be reduced in accordance with / proportionate to the increase in the valuation table.
• CGT holding period for constructed property be reduced from 4 years to 3 years, as was the case prior to tax year 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 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.

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 for construction industry has been reduced to approximately 2%.

6. Exemption of Taxes on First House.

Construction, purchase / sale of first house/residential unit shall be exempted from all taxes, including capital gains tax (CGT).

7. Establishment of Special Tax Circles.

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

TAX INCENTIVES BY PROVINCIAL REVENUE AUTHORITIES (PRAs)

1. Sales tax at the time of sale of 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.
2. 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 property.

• Low cost housing by NAPHDA / provincial housing authorities be completely exempted from provincial sales taxes by all provinces.

1. All provincial and municipal taxes/duties/fees/charges on transfer/registration of urban properties to be clubbed under one head and charged at the rate of 2 percent of valuation.
2. E-stamping system being introduced by all provinces.

MEASURES FOR CREATING EASE OF DOING BUSINESS BY PROVINCES

1. The process of fresh master planning / updating of existing master plans and zoning already initiated by provinces may be expedited.
2. 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.

• All provinces/development authorities are in the process of introducing fully automated one window portals for processing approvals and all other client services / facilitation.

1. Policy on high rise construction has already been approved by the Government. 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.

CONSTRUCTION SECTOR HAS BEEN GIVEN THE STATUS OF INDUSTRY

The Government has already approved the status of industry for construction sector. This decision may be implemented forthwith.

HOUSING / MORTGAGE FINANCING

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