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Existing construction alert set to push most employment and economic viewpoint

Existing construction alert set to push most employment and economic viewpoint

Interview with Muhammad Talha — an analyst

PAGE: Tell me something about yourself, please:

Muhammad Talha: I have been working in Arif Habib Group for last 12 years. Before joining the Arif Habib Group Company, I served in Al-Abbas Group, Ghulam Farooq Group and EY Ford Rhodes and gained experience in diversified sectors serving clients spanning the financial, manufacturing and real estate sectors. I have a working experience of more than 20 years in various diversified capacities. My current engagements include the overall set up and management of a state-of-the-art Gymkhana, Health, Education, Sports facilities and Islamic Center at Naya Nazimabad, Karachi.

PAGE: Has the government taken the right steps for the construction sector?

Muhammad Talha: The current government has given the top priority to construction sector and for this purpose, this sector has been given the status of industry. The idea behind it is the generation of maximum employment and increase in GDP as more than 50 industries are connected with construction sector. One of the incentives provided in the scheme is that no question would be raised with respect to the investment made by the individual. This will help to bring the black money/undocumented money in the market, which will help raise the employment along with documented economy.

Beside this following are some key incentives:

  • Withholding Tax on construction industry lifted from all sectors, except steel and cement
  • No Capital Gain Tax for family house sale
  • Fixed Tax Rates for construction sector – charges per square foot or square yard.
  • Investment in construction projects under “Naya Pakistan Housing Authority”, 90% fixed tax will be waived and only pay 10% tax
  • Rs 30 billion subsidy to Naya Pakistan Housing Projects for stimulating construction activities.
  • Reduction of Sales Tax for construction industry in coordination with the provinces.
  • Rate of Tax reduced proportionate to the increase in FBR Valuation Table.
  • Capital Gain Tax (CGT) holding period for constructed property reduced from 4 years to 3 years (as was the case prior to 2019).
  • CGT holding period for real estate/plots may remain eight years, however, the Rate of Tax may be significantly reduced on sliding scale from fourth year onward.
  • The investment made by any person on purchase of land and constructing any structure (house, commercial building etc.) will be exempted from provisions of Section 111 of the Income Tax Ordinance 2001, (applies for tax on the person concealed income).
  • In addition, besides, construction of any structure on already owned land within this period or first purchase of newly constructed property within this period will also be exempted from the same clause of income tax.

PAGE: Could you tell us about the performance of the real estate and construction sector?

Muhammad Talha: During the year global pandemic COVID-19, had disrupted the overall world economy and in particular under developing country like Pakistan had been affected badly however, fortunately, Pakistan economy has shifted back to the rising track after the uplifting of lockdown, which were imposed for couple of months drilled down the economic progress all over the country. The upcoming year is expected to be fruitful for the Pakistan economy as the registration under scheme has already been extended for further period of one-year i.e., till December 31, 2021. This particular act will bring the investment at large by the end of this current fiscal year

PAGE: Your comments on the cement sector?

Muhammad Talha: Cement dispatches are rising, both for domestic consumption and exports, since the resumption of business activities following the decline in the coronavirus infections in June and successful adoption of smart lockdown and early opening of construction sector. The industry, which had suffered a cumulative loss of Rs13 billion — including the COVID-19 related loss of around Rs. 5 billion in the last fiscal year owing to the addition of 1.5m tonnes in new capacity and shrinking demand, has seen its profitability return this year as the retention prices increase, excise duty is cut by Rs25 per bag to Rs75 and sales spike. Besides, the reduction in interest rates has significantly lowered the manufacturers’ financial costs that had been a major drag on their margins.

State Bank of Pakistan (SBP) measures — subsidized loans for wages, deferment and restructuring of existing corporate debt for one year, long-term, cheap financing for new projects and BMR (balancing, modernization, replacement) etc. have had a very positive impact on business confidence. Cement industry is expecting a double-digit growth for the cement dispatches for upcoming years based on the amnesty announced by the government of pouring investments in real estate sector before December 2021 would not be questioned for the source of finance, low cost housing scheme financing by the banks (5% of the lending portfolio), dams construction and CPEC projects.

PAGE: What should be expected in 2021?

Muhammad Talha: Year 2021 is expected to be flourishing for Pakistan’s economy, as till the date of December 31, 2020 around PKR 163 billion project have already been registered under real estate scheme announced by the Prime Minister. The deadline for the registration under the scheme has also been further extended till December 31, 2021 which is expected to attract many investor. This measure will help to bring investment in the economy and will also help to make the economy documented in the future. The rising unemployment rate is expected to be drilled down in the current year as well.

The construction industry package initiatives to boost industrial output and exports i.e. TERF (Temporary Economic Refinance Facility), relief scheme for restructuring/deferment of loans, SBP Rozgar Scheme, power and duty concessions and faster processing of tax refunds etc. would also have a positive impact on the pace of economic activities. Steps taken by the Government to improve systems as per the directions of FATF and IMF would also have a positive result. Till date large scale manufacturing numbers are very sound and it looks that it will grow in future as well.

In the last two months export numbers are very encouraging as compared to India and Bangladesh. Since, growth of export and foreign remittances have shown an upward trend and services imports are on a lower side, it is favorable for our economy. Till date more than PKR 60 billion to PKR 70 billion disbursement has already been done by the banks for new projects. Around PKR 500 to PKR 600 billion loan financing applications are pending which indicates that those investors and companies who would want to start their projects after 2 to 3 years, they are now considering it to start their project as early as possible especially in textile and cement sectors.

Principal deferment scheme and salary disbursement scheme on discounted markup has also become a factor in increasing the liquidity in the market. The revenue target set by the government during the previous year was PKR 3,900 billion and now it is estimated at PKR 4,900 billion and it is expected that growth rate in 3rd and 4th quarter would be ranging from 20%-50%. However, unstable political and geo-political situation is a challenge for our economy. We hope and pray that this year may bring a very healthy growth in every fronts of our economy and COVID 19 would become blessing disguise for our economy.

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