The government is contemplating giving construction an industry\nstatus. That effectively means that, once declared, like other industries,\nconstruction will be entitled for tax exemptions, relaxations and other forms\nof subsidies or waivers. In the same vein, real estate developers are also hoping\nto rally support for housing from the government and kick start development in\nan otherwise slowed down economy. <\/p>\n\n\n\n
The developers prefer a fixed rate tax regime, one similar to that\nfaced by a few other industries where the turnover tax is deemed as full and\nfinal. The rates recommended by the Association of Builder and Developers (ABAD)\nare Rs. 40 per square feet (sqft) for units with a covered area of less than\n750 sqft, Rs. 80 per sqft for a covered area between 750-1,500 sqft, and Rs. 140\nper sqft for covered areas above 1,500 sqft. <\/p>\n\n\n\n
Assuming the selling price of an apartment to be Rs. 6,500 per sqft,\nthe revenue tax is computed at 0.6 percent for apartments with covered area under\n750 sqft, 1.2 percent for 750-1500 sqft, and 2.2 percent for above 1500 sqft. For\na higher selling price, the turn over tax would be lower. Such turn over taxes\nare applicable to industries where margins are low such as Oil and Marketing\ncompanies. But is construction a low margin sector? <\/p>\n\n\n\n
Concerned with the documentation issues, developers are asking for a\nno-questions-asked policy for first time buyers. There used to be such a provision\na couple of decades back, which the developers believe could be reintroduced.\nBuyers in Pakistan usually do not have enough declared money to make a full\npayment on property. Even the salaried class mostly use proceeds from selling\ninheritances such as family land or house to purchase real estate assets. The\nfamily real estate is sold at declared value which is a fraction of the actual\nvalue. This is because the buyer can only declare a fraction of his inheritance\nwhile the rest of the amount is not documented on fresh purchase. <\/p>\n\n\n\n
Developers argue that if they have to pay actual income tax on\nunits to be sold, they cannot declare the full amount as the buyer usually does\nnot have the required fully declared amount to buy. These are inevitable shades\nof grey. In the case of expatriates buying property, this situation is reversed.\nThe Pakistanis residing outside want to fully declare the amount and to transfer\ndirectly into the seller\u2019s account, but the seller (or the developer in this\ncase) is reluctant to do so. This results in different selling prices of two\nidentical units, one sold to local (buying on inherited money) and the other to\nan expat. <\/p>\n\n\n\n
The other taxation agenda on the plate is to do away with input\ntaxes on construction material such as Goods and Services Tax of 17 percent on\ncement and steel. This can surely help in making housing units more affordable.\nSuch incentives are imperative for the success of low-cost housing schemes\nunder the Naya Pakistan Housing & Development Authority (NPH&DA). It is\nbetter to have input taxes adjustment based on the covered area \u2013 lower the\narea, higher should be the input tax exemptions and vice versa. <\/p>\n\n\n\n
In addition, the developers are asking for opening up land holding\nof governments for open auction, since majority of land is owned by provincial\ngovernments. The structure of opening up is under discussion in government at the\nfederal level. However, the problem lies in the role of respective provincial\ngovernment. Without having a coordination body or secretariat, it is going to\nbe very hard to formulate auction plans. \n<\/p>\n\n\n\n
Another issue is that there are inevitable delays in developing\nprojects from the point of conception to handing over units to buyers. There\nare around 18 approvals required for a high-rise project. It takes around 18-30 months to obtain such\napprovals. This dilutes the commercial viability of the projects. Therefore, developers\nare seeking for a one window operation under NPH&DA. The fear is that it might\nend up becoming another window in addition to the 18 existing ones while\nfailing to bring provinces and other state agencies on board. <\/p>\n\n\n\n