THE decision to extend the construction amnesty scheme was widely anticipated. Prime Minister Imran Khan described the extension of the fiscal, monetary and policy incentives announced in April last year to encourage investments in real estate as a ‘New Year gift’ for the construction industry. According to the FBR, the government has extended tax amnesty, the most controversial part of the package, for investors — builders and developers — for another six months to June 30, as well as the period for them to avail a fixed tax regime to the end of the calendar year. Moreover, the deadline for investors to complete their projects registered with the FBR under the package has been stretched to September 2023. Likewise, buyers of housing units and plots will enjoy tax immunity on their investment until March 2023. The banks will continue to disburse cheaper, subsidised mortgage finance to consumers till December. Both the prime minister and investors are hopeful that the package will offset the negative impact of the coronavirus pandemic on the economy and create jobs.
Indeed, the incentive package has largely produced the desired results of reviving a dormant construction industry and creating employment opportunities for daily wagers. The sale of construction material eg cement, steel and glass has grown rapidly with land prices in many cities peaking again. This has afforded the government, which had otherwise been struggling to show some achievement on the economic front, an opportunity to brandish the numbers to underline its ‘success’ in rescuing the economy from the virus’s adverse impact. Still, the tax amnesty for real-estate investments has also raised questions about the ruling party’s position on corruption and its so-called accountability drive. If real-estate investors can be given a waiver on ill-gotten money, why target the others and not extend a similar amnesty to them for the sake of the economy and political stability?
While Mr Khan happily informed the nation that real-estate incentives had so far brought in investments of Rs186bn with more projects worth Rs116bn in the process of registration, there are indications that the bulk of new investments has been made in land rather than construction. There is no doubt that several construction projects that had stalled because of fear of NAB action or the government’s economic stabilisation policies — especially in Karachi — have been revived, explaining the increased cement and steel sales. But the fact remains that investors have mostly used the scheme to launder their illegal money through land sale and purchase instead of investing in construction. The real impact of the incentives package on the construction industry will not be known unless the FBR starts to release the details of the projects and updates the status of construction activity on a quarterly basis. Similarly, the State Bank should devise a mechanism for reporting new housing finance disbursements by the banks for the sake of transparency.
Published in Dawn, January 2nd, 2021