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Dr. Ikramul Haq
The seriousness of the housing issue in Pakistan can be judged from the fact that conservative estimates put the housing backlog at nine million units which is increasing at 300,000 units annually because of unmet demand. Sixty-two per cent of this demand is for lower-income groups. Yet political party manifestos hardly talk about this…..Imran Khan has outdone both the PPP and the PML-N. He is promising to build 5m houses. This will cost a minimum of five thousand billion rupees which is one-seventh of our GDP and will require more than 120,000 acres of land. We do not know how he will manage this but even if he succeeds in building 20pc of what he is promising, it will be a great achievement—Arif Hasan, ‘Houses or housing?’, Dawn, July 15, 2018
Federal Board of Revenue has issued a clarification regarding extension in Prime Minister’s Construction package. FBR has stated that last date for seeking immunity by builders and developers from probing their source of funds and availing fixed tax regime has been extended from 31st December 2020 to 30th June 2021. Similarly, the last date for builders and developers who want to avail fixed tax regime has been extended from 31st December 2020 to 31st December 2021. FBR has further clarified that last date for completion of projects has been extended from 30th September 2022 to 30th September 2023 and last date for buyers of housing units and plots has been extended from 30th September 2022 to 30th March 2023—FBR’s Press release issued on December 31, 2020.
On the last day of 2020, Prime Minister of Pakistan, Imran Khan, gave a “New Year gift” to nation [read rich developers, builders and contractors]. In a brief televised address, Prime Minister, instead of offering relief package for 2021 to the needy and the poor suffering immensely after second deadly wave of Covid-19 endemic, extended amnesty for the rich and mighty, who even after numerous amnesties, offered by successive governments in the past, have yet failed to explain the sources of their investment in real estate business.
Housing is a serious problem as highlighted by Arif Hassan, renowned architect, planner, activist, social researcher, and writer, in his above quoted op-ed. Over 65% of our population in lower-income group needs decent and affordable housing. However, policies of the successive governments, including the coalition government of Pakistan Tehreek-i-Insaf (PTI), have been facilitating only those who make huge profits by exploiting the masses in real estate and avoid taxes as highlighted in Executive defying Legislature, Daily Times, December 6, 2020.
The Premier said the government would provide “Rs 30 billion as subsidy on the loan for markup for low cost houses, with a maximum of 5 percent on five marla houses and 7 per cent on ten marla houses”. He also pledged to provide a grant of Rs. 300,000 each for the construction of first 100,000 houses. The Premier claimed that “the PTI government was the first, after 1960s, to work on promotion of industry for revenue generation, retirement of debt and creation of jobs”. By December 31, 2020, 186 projects were registered with Federal Board of Revenue (FBR), while projects worth another Rs 116 billon were in the pipeline. Additionally, 163 projects were launched in Punjab, whereas proposals of Rs. 136 billion were in the process of approval. Prime Minister claimed that in the Punjab alone economic activity of Rs. 1500 billion would be generated with creation of 250,000 new jobs.
The Prime Minister said similar projects were in different phases in Khyber Pakhtunkhwa, Sindh (mostly in Karachi) and Baluchistan. He mentioned that after the approval of foreclosure law, the banks would be extending loans for construction of houses for the low-income groups. He said, under the scheme, the banks would extend loans worth Rs. 378 billion by December 2021.
It may be recalled that in third quarter of Fiscal Year 2019, due to wrong tax policies of the coalition Government of PTI in Finance Act 2019, under former Chairman FBR Shabbar Zaidi, construction sector witnessed a sharp contraction of 7.6% in FY19 from 8.2% growth during FY18”.
In a Press conference on April 3, 2020, Prime Minister announced what he called a “comprehensive relief/stimulus package” for the construction sector. The Chairman, Association of Builders and Developers of Pakistan (ABAD), termed the tax incentives announced by Prime Minister Imran Khan as “a historic package for the construction industry of Pakistan and this package will prove a turning point for the economy of Pakistan”. In a statement, he said that ABAD was demanding incentives for the construction sector “because more than 70 allied industries are depending on construction sector.” He said, “We are indebted to Prime Minister for reviving the construction industry”.
Wizards sitting in Ministry of Finance and FBR have failed to realise that long-term 10-year tax holiday for the real estate/housing/construction sectors would have been more beneficial as over 70 industries are linked to these sectors and Pakistan needs millions of houses every year. These measures if successful, can avoid recession, revive economy and provide employment to millions. It would be a win-win situation for all as tax concessions to real estate, housing and construction sectors will be set-off automatically by higher turnovers of industries allied with them, besides giving these capacity to retain employees in addition to reviving industries hit by lock-down and contraction in demand.
The construction industry in return must provide full social protection and universal entitlements to its workers. Needless to point out that construction industry absorbs both skilled and unskilled workforce on a large scale. Once construction boom takes place in any economy, demand for numerous industries supplying goods and services also increases giving impetus for creating more and more jobs. The Prime Minister has so far not considered this aspect. In the package (original and extended), the PTI Government though declared construction an “industry”, but has not made it mandatory for them to take care of all their employees, workers, permanent or on contract. They should comply with all the relevant labour laws related to Social Security, Employees Old Age Benefits, and Workers’ Welfare Fund etc.
There are almost 70 industries within the supply chain of construction industry, ranging from cement to steel, bricks and blocks, prefab structures and construction support materials, to plastics to electrical and mechanical fittings to bulbs, lights, electronics, to paint to steel and aluminum windows, doors to glass, to wood to kitchen and bathroom fittings, just to name a few; in addition to many service providers.
The Prime Minister and his economic wizards must see research work by PIDE showing how vibrant real estate, housing and construction sectors, with proper zoning and regulations for urban development in particular, giving space to street vendors facilitating the marginalized [see extensive work of Arif Hassan, Dr. Nadeem Ul Haque, Dr. Muhammad Naveed Iftikhar and many others] will revive downstream industries, especially in terms of accelerating growth and creating jobs, and its spiral cascading impact.
The critics say that in Pakistan, most wealthy people invest in real estate and construction to whiten their ill-gotten and/or untaxed money and therefore, they will be the real beneficiaries. By and large, the majority of economists agree that resumption of construction activities can revive employment, generate supply of goods and services, having a potential to kick-start the economy that is much needed, though in the wake of second deadly coronavirus outbreak, circumstances are unfavourable for investment in any sector in 2021.
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Dr. Ikramul Haq, Advocate Supreme Court, specialises in constitutional, corporate and tax laws. He established Huzaima & Ikram in 1996 and is presently its chief partner as well as partner in Huzaima Ikram & Ijaz. He studied journalism, English literature and law. He is Chief Editor of Taxation andVisiting Faculty at Lahore University of Management Sciences (LUMS).
He has coauthored with Huzaima Bukhari many books that include Tax Reforms in Pakistan: Historic & Critical Review, Towards Flat, Low-rate, Broad and Predictable Taxes (revised & Expanded Edition, Pakistan: Enigma of Taxation, Towards Flat, Low-rate, Broad and Predictable Taxes, Law & Practice of Income Tax, Law , Practice of Sales Tax, Law and Practice of Corporate Law, Law & Practice of Federal Excise, Law & Practice of Sales Tax on Services, Federal Tax Laws of Pakistan, Provincial Tax Laws, Practical Handbook of Income Tax, Tax Laws of Pakistan, Principles of Income Tax with Glossary andMaster Tax Guide, Income Tax Digest 1886-2011 (with judicial analysis). He is author of Commentary on Avoidance of Double Taxation Agreements signed by Pakistan, Pakistan: From Hash to Heroin, its sequelPakistan: Drug-trap to Debt-trap and Practical Handbook of Income Tax.
He regularly writes columns for many Pakistani newspapers and international journals and has contributed over 2500 articles on a variety of issues of public interest, printed in various journals, magazines and newspapers at home and abroad.