Builders and developers, especially in Karachi and interior Sindh, are demanding that the government should extend its amnesty scheme for the construction industry, which ended in June 2021, for another two years.
They argue that Amnesty Scheme proved its success in persuading investors, businessmen, and even common citizens to enter into FBR tax books and contribute to increasing economic activity. However, slow-moving bureaucracy and communication gaps bolstered by pandemic have not allowed the country to fully benefit from the Amnesty Scheme – especially in Sindh.
PM Imran Khan had launched this “Amnesty Scheme for Construction Industry” in April 2019. Pakistan, in the last 25- 30 years, had witnessed many amnesty schemes, but this one offered by Imran Khan was uniquely different. Under previous schemes, people were simply given an opportunity to legitimize their undeclared assets (physical or cash) by paying 1-2% tax on their declared value.
But Imran Khan government did something altogether different. It used the Amnesty Scheme to boost economic activity, generate employment and multiply tax revenues. Government told businessmen that they could declare the physical asset or cash, but within six months of such a declaration, they were committed to bring these newly declared assets into construction projects – only then were businessmen allowed to obtain immunity from questions.
This is one of the reasons why we have seen massive price increases in urban areas for residential and commercial plots and houses. The amnesty scheme was pushed through a package promulgated through the Tax Laws (Amendment) Ordinance, 2020, whereby a new Section 100-D and 11th Schedule were inserted in the Income Tax Ordinance, 2001.
It was later extended through another ordinance. IMF resistance to the idea was overcome by PM personally explaining that due to corona, the economic activity of an already poor country was hit and the government needed this incentive to help stimulate economic activity.
The Amnesty scheme showed results. It started to boost economic activity in the country. Government believed that at least 40 industries get stimulated by construction. Association of Builders and Developers (ABAD) believes that around 70 industries can be considered “Allied Industries to Construction.”
Data shared by the Pakistan Bureau of Statistics (PBS) showed that the cement output grew by 57 percent during this period due to greater demand after the start of construction activities and an increase in exports. In the steel sector, the production of billets and ingots grew by 58 percent. Similarly, other industries showed positive trends in their production.
The break-up of data until the end of June 2021 shows 1,100 projects with an estimated cost of Rs. 340bn were registered on a permanent basis with the FBR by fulfilling all requirements, including registration of taxpayers. And another 300 projects with an indicative investment of Rs. 43bn is in draft stages. About 3,851 buyers had shown interest in purchasing properties by availing tax incentives for the construction sector till May 2021.
Unfortunately, Karachi, which is the main center of economic and construction activity (Pukka construction – higher in Karachi and Sindh) in the country, remained worst affected in its economic activity during the corona pandemic – and Govt of Sindh imposed most strict close-downs in Karachi against federal advice. Karachi, the real engine of the economic and construction industry, therefore, has not been able to avail from the amnesty scheme due to delays in getting NOCs and other regulatory approvals.
Only 105 approvals of the amnesty scheme were given in Karachi in the last 18 months versus the hundreds issued elsewhere across Punjab, ICT, and KP. ABAD sources maintain that 350 approvals are currently pending in Karachi, and more than 300 are expected if this amnesty is extended.
The value of these projects is estimated at Rs.1,000 billion. The builders’ community is arguing that, in view of this reality, the government needs to negotiate with IMF to get the amnesty extended for another two years to help the country get back on its feet which is also IMF’s goal. After agriculture – construction is the second biggest employment creator in the country.
Logistics and global supply chain disruptions have meant construction materials have jumped in prices worldwide. Mild Steel bars (MS steel bars), the main material used for construction, are currently very expensive, internationally trading at above US $700/ metric ton.
Read more: Was Amnesty Scheme Pakistan’s only way out?
Pakistan has seen huge increases in cement and bitumen prices – developers are reasoning that soon these prices will settle down, and along with the amnesty scheme, it will enable further construction in the country. Shaukat Tarin, country’s de facto finance minister, had declared in June that the government had demanded another extension, from IMF, for its Amnesty Scheme – however, to this point (Nov 21), Pakistan has not been able to finalize its deal with IMF. Will the government be able to obtain another much-needed extension for Amnesty Scheme for construction remains to be seen.