Builders across the country have submitted a comprehensive budget proposal to the government, urging urgent tax reforms to revive the struggling construction sector. With the industry currently operating at only 50% capacity, these reforms are seen as crucial for its revitalization.
Muhammad Altaf Tai, the Chairman of the Association of Builders and Developers (ABAD), stressed the significance of reviewing taxes and duties related to the construction industry. One particular issue highlighted was the imposition of a 30% regulatory duty on the import of steel bars under HS code 7215.10. This duty has given an unfair advantage to a group of large-scale steel manufacturers, leading to a sharp increase in steel bar prices to Rs 300,000 per metric tonne.
As a result, approximately 50% of ongoing construction projects have come to a halt, stated Tai. He further pointed out that during Eid, a time when expatriate Pakistanis typically invest in real estate and construction, no new projects are expected to be launched.
To grasp the magnitude of the situation, local cement dispatches, a vital aspect of construction activity, have witnessed a 14% decline in the first 11 months of fiscal year 2023, amounting to 36.53 million tonnes compared to the previous year. Additionally, export sales have dropped by around 20% during the same period, reaching 3.99 million tonnes.
According to Ali Asif, a cement sector analyst at Insight Research, the decline in cement sales can be attributed to rising construction costs, economic slowdown, high interest rates, the Public Sector Development Program (PSDP), reduced private sector spending, and uncompetitive prices affecting exports.
Eliminating the regulatory duty on steel bars will not only stabilize prices but also allow the government to collect taxes of Rs 80,000 per metric tonne, currently at zero. This move will enhance competitiveness in the local steel bar market, benefiting the 72 allied industries associated with the construction sector and safeguarding millions of jobs.
Chairman ABAD emphasized that projects falling under sections 100C and 100D must meet the completion deadline of September 30, 2023. However, due to the prevailing challenging economic conditions, including a 200% increase in construction material prices and higher borrowing costs from banks, construction activities have significantly slowed down. To avoid complications, litigation, and protect the investments of end consumers, the completion date for projects under these sections should be extended to September 30, 2024.
Tai highlighted that the tax paid by projects registered under these sections is a final tax, which cannot be adjusted or refunded. While this policy was highly appreciated by the construction industry and resulted in a significant increase in tax revenue, the imposition of tax under section 236C on projects registered under sections 100C and 100D has resulted in double taxation, which needs immediate rectification.
The proposal also includes revised capital gains tax rates, where no tax shall be levied beyond 5 years of ownership. If a property is sold before the 5-year mark, the following rates should apply: 10% if sold within 1 year, 8% if sold within 2 years, 6% if sold within 3 years, 2% if sold within 4 years, and 0% if sold after 5 years.
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