Incentives for construction sector

As an inevitable measure in the prevailing situation of standstill in the economy, Prime Imran Khan announced a package of liberal fiscal incentive for the construction sector, which has been major employment provider service sector in the country due to secular stagnation in the manufacturing. The investors will not be questioned to disclose their source of income, allowing them a windfall opportunity to whiten their black money, enjoying tax exemption. The amnesty will be allowed to only builders and developers. It has not been extended to the developers of housing societies and projects. Tax on gains in investment of builders and developers has been waived off and also for citizens, who want to sell their own houses. Currently, capitals gain tax from 5 to 20 percent is charged on the sale of constructed assets and residential plots. The incentive of tax exemption will necessitate changes in the section 111 of income ordinance 2000, for which Presidential Ordinance shall be promulgated. It remains to be seen that how far the second tax amnesty announced for regularizing the black money achieves the intended results as such schemes had not helped in reducing the size of parallel economy, except the ones in the eras of President Ayub Khan and General Musharraf. In the government of General Zia, tax amnesty scheme of ‘Whitener Bonds’, brain child of technocrat Finance Minister Dr. Mahbubul Haq had miserably failed, although these bonds were declared as collateral for acquiring bank loans. The verbal positive response that business leaders gave on the fiscal incentives for the construction sector raise hopes that this time around the tax amnesty scheme will help generate a lot economic activity in the construction sector. If it happens so, then it will have a multiplier effect on the manufacturing sector. The industries such as cement, steel, chipboard, paints and hardware manufacturing will get a big boost. Coronavirus spread has taken a toll on the cement industry. Domestic consumption of cement has declined by 16.7 percent and its exports have remained sluggish at a pace of 5.27 percent. The cement sector sold 3.62 million tonnes in March 2020 as compared with the domestic sale of 3.34 million tonnes in the corresponding month of previous year. The momentum in construction sector will certainly give impetus to chipboard industry, leading increase in output and employment in this industry. The same positive impact will on bricks kiln business. It will not benefit much the chain of steel rerolling mills due to the closure of Pakistan Steel Mills and delays in the import of billets may create supply demand imbalances, causing increase in construction cost of low cost housing schemes. Hence, the industries that have close linkage with the construction sector would also need fiscal and monetary incentives as well.