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What are the effects of the Prime Minister’s new package for the construction and Real Estate sector?

by The Property Guider on May 1, 2020
What are the effects of the Prime Minister’s new package for the construction and Real Estate sector?
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Prime Minister Imran Khan has announced an encouraging package to ease construction authorities and their investors on April 2. By looking at current financial downs in the sector due to the Coronavirus pandemic, He proposed a relief package for all the concerns of the construction sectors. He gave the status of industry to the construction sector and said the fixed tax will be introduced in the construction sector. Any kind of investment for purchase or construction of land from now till 30 June 2022 will be relieved by the steps.

The main encouraging steps announced by the premier include

1.No Source of Income:

All the people investing in the construction sector this year will not be questioned about their source of income. People who will invest in the industry this year, will not need to declare their source of income.

2.Fixed Sales Tax:

Sales tax will be reduced in coordination with provinces. The fixed Sales tax rate will be followed for the construction and will be charged as per square foot or square yard. Developers and builders will pay the fixed sales tax, at the time of sale of the property.

3.90% Tax Reduction for Naya Pakistan Housing Society:

Investors of construction in the Naya Pakistan Housing Scheme for the poor will only have to pay 10 percent of the fixed tax. People who invest in construction projects under Naya Pakistan Housing Authority, 90% tax will be forgiven and 10% is payable.

4.No Withholding Tax:

Withholding tax will be removed for all construction sectors except the formal sectors of steel and cement that are taken from companies. Constructors will not deduct withholding tax from the workers.

5.No Capital Gain Tax:

Any family selling their house will not have to pay any capital gains tax. They will have relief of all the taxes including capital gains tax in construction, sell and purchase of their first house. Besides, construction of an owned house or first within this period or first purchase of newly constructed property within this period will be free from all the taxes regarding construction.

6.Subsidy:

A subsidy of Rs30 billion to be given for the Naya Pakistan Housing Scheme.

7.Status of Industry:

Construction sector to be given the status of an industry. PM has granted the constructor sector as an industry. However, this decision is pending until the budget on the recommendation of the Ministry of Commerce and FBR. Construction Industry Development Board is to be set up to support and promote the sector.

More comprehensive details will be shown after the issuance of FBR’s notification on the announcement.

Effects of PM’s package on the construction sector

PM announced the set of relief package to ease people who are indulged in any kind of land construction or sale or purchase, especially for low-income people.

Effects on the investors and worker’s class

This provision directly relieves the lower class to a large scale. And this was the core purpose of the package too.

  • As all the taxes in sale, purchase, and construction have been removed, prices of land and construction expenditures will come down. Families who will buy or construct houses will be benefited to an extent.
  • Prices of the house, as well as the plot, will decrease because of all the announced factors including lowering tax, removal of gain taxes, and a fixed rate of sale taxes. People with limited savings can invest in the best possible way during the period.
  • Construction costs will decline because of the removal of taxes from materials. This will down the overall expenditure from many directions.
  • Not only for the construction of an owned house, but investors can also invest in Naya Pakistan Housing Program easily by paying just 10% of the tax.
  • Removal of withholding tax is another comfort to the worker’s class. Withhold tax is that which a developer or constructor pays to the government by deducting an amount from the wages of workers working under the project. During the span of the package, the fraction will not be deducted from the workers.

Effects on the developers and builders

The package accounts good for the constructors as well

  • Builders and developers have to pay a determined fixed amount of sales tax. The sales tax will be fixed per square foot or yard. This point is a big relief for them as well. Planners will not have to calculate the irrational amount but simply they can understand the tax and set the price smoothly.
  • A federal construction board will be formed that will direct and help developers in their projects. Developers have to consult directly with the board for any guidance or issue. They will get rid of any possible external disturbance or problem in their projects. Moreover, a proper road of regulations from the board will help the development bodies to enhance and grow their activities.
  • The federal board will govern all the developing companies in specifying project their objectives and plans including the understanding of scope, budgeting, scheduling of the projects, setting performance requirements, and selecting project participants.
  • The body will guide in selecting a project participant and will verify the participant’s records in order to avoid any possible legal dispute.
  • Removal of taxes from construction material will optimize the construction cost to an extensive amount.
  • Real estate developers and the builder will not be asked about their source of income. They can turn their savings into profitable purchases and construction during the period without any inquiry or any declaration about their income source.
  • Real estate companies who are carrying out construction in the Naya Pakistan Housing Scheme for the poor will only have to pay 10 percent of the fixed tax. They will get considerable relief in taxes that will help these companies to achieve an ideal profit.
  • This scheme removes all the charges on the purchase of goods and materials used in the construction. The decision will bring a great difference in the expenditures of construction and will provide sizable savings to real estate companies.
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