KARACHI, June 15: Incentives, announced for construction and housing industry in 2004-2005 budget, are unlikely to boost the construction and housing activities, builders and developers say.

They think that the budgetary measures for housing and construction sectors are not "overall negative" but unfortunately these measures are not aimed at boosting the construction activities. Things will remain the same as of last year, they say.

Giving an example of 10 per cent cut in excise duty on paints and varnish, which according to builders, would result in lowering the cost of construction by a slight margin and not much.

"The share of paints and varnish in a construction project cost ranges between 2-2.5 per cent," the chairman, Association of Builders and Developers (ABAD), Babar Mirza Chughtai told Dawn on Tuesday. "This is truly not considered as a major relief or incentive for our sector," he added.

Most of the budget proposals for the year 2004-05 were no doubt friendly and the budget would have good impact on the growth of economy, but the incentives, which the housing and construction industry was expecting were not at the table, he said.

He said some incentives in the budget like duty cut from 10 to 5 per cent on shredded and bundle scrap, ships for scrapping, billets and decrease of duty 25 to 10 per cent on steel bars and sections would lower the cost of steel and iron used in the construction and housing industry. The abolishment of duties on imported machinery is a good move.

But these measures may not give a real flip to the construction sector, Mirza said adding that the government had not reduced the excise duty on cement which holds main share in a construction project.

ABAD had offered various proposals to the Ministry of Finance and if these would have been taken in the budget proposal then the construction cost would be much lower to the level where every one could have his own house, Mirza said.

He said the country is now facing a shortfall of six million houses every year. Only 300,000 houses are being constructed every year as against the yearly demand of 570,000.

Vice Chairman, Standing Committee on Housing and Construction Industry, FPCCI, Munir Sultan said the finance minister and the government had rightly recognised the importance of this sector in terms of employment generation purpose, "but the recognition in terms of incentives has not reflected in the budget 2004- 2005."

He said Karachi has not witnessed any mega project launching for the last many years and construction activities were going on in Punjab. He said that every year 600,000-700,000 people are arriving in the city from various parts of the country, thus pushing up the demand for houses, but construction is not picking up at the required level.

Munir on Tuesday also discussed the budgetary measures with Chairman Senate, Mohammadmian Soomro over telephone. Chairman Senate asked him to send suggestions and proposals so that he could discuss the problems of housing sector at higher levels.

Builders have now set their eyes on the Sindh budget where many issues relating to land are pending. ABAD on Tuesday has again sent a letter to the finance minister, Shaukat Aziz, urging him to reconsider association's earlier proposal so that the construction and housing industries could revive in the country.

According to proposals, ABAD sought a moratorium of three years on capital gain tax at the rate of one per cent for the industry for next three years. The request is being made that due to the problems created in the past due to extremely high transfer duties on property and the wealth tax problems.

This is a basic cause for the inception of the black economy in the housing industry and its impact is multiplying with the passage of time. This would help in declaration of land at its full value thus bringing more and more investors in the books.

Presumptive gain tax regime be applied at a flat rate of one per cent on turnover on valuation table of the registrar for the value or sale value which ever is higher.

The 15 per cent plus gross profit being applied to the building is no longer a fair assessment because in this low interest environment we do not see the margins of profit being what they used to be when the interest rate were hovering in the 15 per cent range.

"We today are being forced to cut deals with the tax authorities, lot of revenue is lost to the government, and the bargaining is not conducive for the industry," he said.

Lowering of GST to 7.5 per cent on construction material. The present GST of 15 per cent on construction materials is too high making material cost ineffective and the ultimate result is in the shape of higher cost of the housing unit.

The lowering of GST would directly lower the cost of construction and increase the affordability of housing units to the masses. Removal of excise duty on all construction material as excise duty is basically levied on luxury items.

The excise duty at present on cement and cables etc negates the very purpose for which this duty is levied. The construction materials cannot be categorised as luxury items. ABAD calls for removal of excise duty on construction materials.

In order to bring down cost of construction and improve quality it is imperative to bring the import duty on machinery and equipment not manufactured in Pakistan at zero rate.

To witness price cut in cement and steel, the association suggested for reduction in import duty on these items in order to make imported cement and steel competitive with local industry.

ABAD said that 25 per cent of Zakat collection should be set aside for the development of housing schemes for poor and needy. The demand for housing is more in urban areas and the poverty in our rural areas is greater than those in urban areas.

At least 25 per cent of the Zakat fund should be utilised for developing rural housing for poorest of the poor which could be assured by the local governments.

Subsidised lands should be provided to builders in rural areas for construction of housing schemes with a condition that these schemes should be completed in given time frame and income on these schemes should be tax free.

The association suggested setting up of specialized banks for granting loans to builders and developers on syndication basis. At present almost all the commercial banks are providing loans to individuals for the purchase of the construction of housing units.

But it is felt that these banks are not geared up to cater to the needs of bulk financing/project financing to the housing industry because this segment of financing is not core business of commercial banks. Therefore, it is much needed to form a specialised housing bank, which will provide finance to builders and developers on syndication basis.