The need for housing units has also been increasing with the great surge in the population of the country with every passing day. The current capacity of developers in the country is to deliver only 150,000 housing units per year, but the actual demand in Pakistan stands at 350,000 new housing units per year. This leaves a shortfall of 200,000 units each year.
Also due to Covid-19, human life around the globe came to a halt. Every sector, whether it was the financial sector or the health sector, was greatly impacted. Like other sectors of life, in the lockdown period, the sector of construction was deeply impacted as the construction all over the country stopped and the related industries were also deeply impacted.
The construction and related industries suffered a lot, the investors and shareholders suffered the most during the lockdown. To help them once again stand on their feet once again, the government of Pakistan stepped forward and announced an influential incentive package for the construction industry that includes a subsidy for the Naya Pakistan Housing Project (NPHP) of Rs30 billion so that people could afford to build their dream house. Prime Minister Imran Khan announced this construction relief package after which this relief package for construction industry in Pakistan has been warmly welcomed by all concerned stakeholders in the industry.
PM Construction Relief Package Benefits:
More incentives for the construction relief package benefits in 2021 were announced by the Prime Minister of Pakistan, Imran Khan such as
End of Capital Gains Tax (CGT):
Capital Gains Tax (CGT) is a federal tax to be paid by the seller of the property. When the seller makes capital gain (profit) on selling property (capital asset), the capital gain is again taxed. According to the Finance Act 2017, Capital Gains Tax (CGT) is imposed only when the property is sold within three years of its purchase. The rate of taxation if property is sold is 10% for the first year, 7.5% for the second year, and 5% for the third year.
Previously, the government used to charge around 5% to 20% Capital Gains Tax (CGT) on the sale of capital assets. After the introduction of this tax relief package for the construction industry in Pakistan, the practice of collecting CGT has been abandoned. This will allow people to easily sell their properties during this pandemic situation. Before the dissolution of this tax, people in the need of liquid money could not sell their property as the buyers were also struggling with the effects of the Pandemic.
The concerned authorities have also bisected the advance tax percentage from 10% to 5%, which is applicable to the sales of immovable assets across the country. Along with these extremely noteworthy and beneficial incentives, a significant decrease in the sales tax was also made in collaboration with the provincial administrations.
Tax relief for construction at a small level:
This package is the first of its kind offered by a government in Pakistan by which both small and large scale investors are content. It is often termed as the relief package for the construction industry in Pakistan as it is the very first time in the history of Pakistan that such incentives were offered to the construction industry. The builders and developers were offered a tax amnesty scheme. The developers and builders of the housing projects of small budget across the country now enjoy a 90% tax exemption.
They have also been exempted from paying the withholding tax on the purchases made for different types of construction materials and other related services. This exemption is on all construction-related goods and services except steel and cement. These incentives also directly benefit the investors of the Naya Pakistan Housing Scheme, speeding up the development of the project.
Income disclosure for FBR tax reduction:
The Federal Board of Revenue (FBR) recorded Rs186 billion worth of development projects all over the country, whereas, projects worth Rs116 billion worth of projects have yet to be registered. Projects worth Rs163 billion have already started in Punjab. In addition, development activities have also been initiated in Sindh, KPK, and Balochistan.
These incentives are expected to generate economic activity worth Rs150 billion in Punjab alone and generate employment by adding 0.25 million jobs across Pakistan.
Taking around 163 projects onboard worth PKR 136 billion and collaborating with the Federal Board of Revenue (FBR), the government announced the fixed tax scheme under the banner of the relief package for the construction industry in Pakistan. The investors of the projects registered with FBR have been given exemption from disclosing their sources of income.
Salient Features of PM Construction Relief Package:
- The date for the disclosures of sources of income for investors has been extended till June 30, 2021, and buyers have till March 31, 2023, to disclose their income sources.
- The deadline has also been extended by one year for the completion of the projects on board with the FBR tax amnesty scheme.
- According to the latest incentives and the directives of the State Bank of Pakistan (SBP), the commercial banks will continue to offer loans worth PKR 378 billion up till December 2021 for housing finance to the general public. It will only be valid for the construction of houses, targeting the people who want to build their own homes belonging to the low-income group.
- For the construction of low budget houses, the government is also offering a subsidy with an allocated budget of PKR 30 billion. A maximum of 5% and 7% subsidized interest rates will be paid by people to construct 5-marla and 10-marla, respectively. The provided subsidy will cover the mark upon loan acquired for building low-cost houses. The government will also provide an additional grant of PKR 300,000 for each of the first 100,000 constructed houses.
All these initiatives hint towards the economic progress and prosperity of the real estate sector of Pakistan.
So if you fall into any of these categorizes described above, it will be a good financial year for you as the tax is exempted from the construction sector. For further details contact Pakistan Property Services.
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