As we all know that the government of Pakistan has announced a relief package for construction sector on the 3rd of April 2020. This relief package was for both private sector as well as public sector. As public sector is not our scope or our expertise we wouldn’t be discussing that in this article today. Private sector consists of both commercial and residential construction. As these are our expertise we will be discussing what impact this relief package will have on residential and commercial construction. The relief package is very comprehensive and detailed but we will try to briefly explain the impact of the relief package in 4 simple points for a layman to understand and comprehend easily.
Government of Pakistan has announced amnesty scheme for the construction. That means until June 2022 whatever money you invest in construction, whether it is for residential purpose, rental purpose or any other purpose, there will be no questions asked from anyone on how the money was earned and invested. For instance before this scheme if a person wanted to build a commercial building they would have had to show the proof of income, or if they have paid tax on that income. But after this scheme if a person wants to build a 5 Marla home or a 20 Marla high rise building there will be no questions asked from them. So this is the golden opportunity for everyone who wants to construct something. This is the golden time.
Reduction in Sales Tax and Excise Duties:
These reductions will benefit everyone. People that are planning to build their houses or commercial buildings should avail this golden opportunity. These reductions are a will undergo tax reduction. Sales tax on construction material was 4.5% before these reductions and now the Government of Pakistan has decided to reduce them. The effect of these reductions will be very positive on the construction sector as prices may drop on the construction material resulting in less costly construction. Apart from that the GST on construction material was from 8% to 16% that is also being reduced by the government. Not just reduction they have decided to totally wave it off for some material. This will help immensely on construction cost. It is however too early to say that how much difference will it make as the policy has not been released on a paper. As soon as the policy is out in black and white and the prices of material drop, it will be a lot clearer. We are looking forward to the changes and will write an article and also make a video on the changes in the prices and cost of construction.
Sales Tax on Service Charges:
If someone wanted their house built by a registered company they would have to pay 7.5% taxes according to the provincial law. For example if you had a contract of Rs 10 million with a construction company they were bound to pay 7.5% of taxes to their provincial government. Similarly if the company’s scale is big and they are operating over Rs50 million they used to fall under federal GST category and had to pay federal government taxes from 8% till 16% on their services. In other words if you would have wanted one of these companies to build your house they would have to pay 7.5% to their provincial government and 8 % to 16% to the federal government. In this relief package government of Pakistan has waved these taxes off to boost the construction industry. With these taxes waved off it will be easier for everyone to get their construction done by proper professional companies. One of the main reasons of our “thekedari nizam” being so in was that these companies were charging too much because of their taxes and in the end not getting value of their money from the thekedari nizam. The good thing about this relief package is that now we can all get our construction done with these professional companies and also get the quality we require.
Government of Pakistan has made taxes on construction fixed . That means if you get your house or anything constructed they will have to pay Rs50/ sqft as tax to the government. For instance if your house is of 1000sqft the construction company will have to pay Rs 50,000/- as tax. Even if the construction company asks the client to bare the load it is easily manageable. It is too early to say the impact of these taxes will be exact Rs 50/- at this time. It may be more or less than that.
In the end the relief package will help the construction industry to boost. Anyone who has the capital or was planning for construction this is the golden time to do so as they won’t be asked to pay taxes over their income.
Please be advised that we are no legal experts, we have tried to explain the relief package from the best of our knowledge to help people understand, we may be wrong. Please consult your legal advisers for a detailed policy breakdown.