Pakistan announces the much-anticipated construction package
Pakistan's Prime Minister, Imran Khan, last week announced the much-awaited Construction Package, which is mainly comprised of tax incentives for the construction industry. The sector has now been given the status of an industry.
Economists and research houses called the package a boost for the construction and cement industries with little reservation and pointed out that while it looks very good on paper, the timing of its announcement is less than ideal, due to the atmosphere of uncertainty and fear in the country that currently prevails as a result of the coronavirus outbreak. However, this package will help spur local cement demand in the country, therefore raising utilisation levels of cement plants once issues related to COVID-19 settle.
The All Pakistan Cement Manufacturers Association (APCMA) saidin a statement: "Prime Minister's incentive package for construction industry will help to increase the cement consumption in the country. However, cement industry is expecting reduction in federal excise duty which is already very high in the region."
Separately, the Association of Builders and Developers of Pakistan (ABAD) has welcomed the incentive package. ABAD Chairman, Mohsin Sheikhani, in a statement, said the incentives were a historic package for the construction industry and would be a turning point for the economy of Pakistan. ABAD was demanding incentives for the construction sector because more than 70 allied industries were depending on the construction sector.
The key features of the package include:
• A Construction Industry Development Board will be establed to develop the construction industry. Those who invest in a newly-constructed building until 30 June 2022 will not be required to declare their source of income.
• A fixed tax for construction sector is being introduced per square feet.
• Withholding tax on all materials and services for construction sector would be abolished except for the steel and cement sectors.
• The tax rate will be fixed for the construction sector, and constructors will be charged tax per square foot or square yard
• Capital Gain Tax (CGT) holding period on constructed property to be reduced to three years from four years.
• PKR30bn (US$179.6m) subsidy would be disbursed for the Naya Pakistan Housing Scheme.
• Lower interest rates will be offered for low -cost housing units.
• A reduction in tax rates by 90 per cent will be offered to a developer who will construct under the Naya Pakistan Housing Scheme.
Prime Minister also stated that GST will be reduced after consultation with all provinces, and all construction related industries would reopen from April 14 to provide employment to the low-income class.
Implications for the cement sector are good for demand, but neutral in terms of profits.
According to Intermarket Securities Ltd, the construction package will be favourable for the cement sector as the government has emphasized the Naya Pakistan Housing Scheme, which will boost cement demand. But, anticipates that such economic activities will kick off in earnest by 2HFY21 after there is sufficient clarity that the COVID-19 outbreak has ended. Notably, the package lacked measures related to input costs, FED or sales tax for the cement sector as a reduction in these is needed to ease the cost pressures and support retention prices of the sector.
