Incentivising construction

Prime Minister Imran Khan has given construction the status of an industrial sector, making it directly eligible for a host of incentives as his government continues efforts to lessen the economic impact of the global coronavirus outbreak. The Prime Minister has announced setting up a board to address issues relating to the industry. The incentives package comes in the form of a fixed tax rate, a substantial discount for any work done on the Naya Pakistan Housing Scheme, and withholding tax waivers. Sales tax will also be reduced in coordination with the provinces. In addition, real estate will also get a boost as house sales will not have any capital gains taxes attached. This is all apart from a Rs30 billion subsidy for the Naya Pakistan Housing Scheme.

While the national exchequer will obviously take a hit because of these measures, most of them are necessitated by the slump in economic activity caused by the pandemic, and must thus be swallowed like a bitter pill. The proposals do have some loopholes though. The most notable is the announcement that people investing in the construction sector this year will not be questioned about their sources of income. Given that construction and real estate are already the investment of choice for those with questionable assets, this is an outright opening to whiten black money. Tax cuts and waivers in themselves would have been more than enough to compensate people involved in the sector. Plus, why would a ‘clean’ investor even worry about being questioned on their sources of income?

There is also the problem of the waiver of capital gains taxes. This will benefit property dealers more than individual homeowners. While it will help in wealth generation for the few, it will do little to stimulate broader economic activity as many of those benefitting will be trading built-up properties rather than building new ones. The real estate sector is already full of overnight billionaires with questionable rises to wealth. Many of them are politically influential, both in front of and behind the curtain. Unfortunately, it appears the government wants to taint an otherwise good initiative to satisfy them.

Published in The Express Tribune, April 5^th, 2020.

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