The construction package and IMF

Prime Minister Imran Khan announced a comprehensive construction promotion package by granting it the status of industry; additionally, investors would not be asked the source of their income, a fixed construction per square foot tax would be introduced, 90 percent tax would be waived off for those who invest in Naya Pakistan Housing project for low income groups that would be facilitated in terms of subsidy of 30 billion rupees and access to loans under a regulatory authority to be set up, withholding tax on all related inputs and services would be abolished excepting steel and cement, combining and reducing sales and transfer taxes in coordination with provinces, and sale of housing units would not entail capital gains tax.
The objective of Prime Minister Imran Khan's construction package effective 14 April is clearly to provide jobs to thousands if not millions of unemployed unskilled and low-skilled labour, jump-start the stalled economy due first to conditions agreed under the ongoing International Monetary Fund programme and more recently due to the Coronavirus pandemic, and last but not least his overarching objective to provide low-cost housing to the poor. The Ministry of Finance no doubt is aiming to generate a current not so large and a future much larger stream of revenue for the government from the expected documentation.
Housing finance has always been dismally meager by all standards in Pakistan. Except for the government owned House Building Finance Corporation other financial institutions shy away from such business because the foreclosure laws were outdated and presented a nightmare for the financial institutions to apply foreclosure in the event of default in repayments. That impediment has been removed by the PTI government and now the foreclosure law that that the banks had been demanding is on the statute book. The real estate sector that traditionally has been the parking lot of choice for tax-evaded money was virtually at a standstill ever since the Federal Board of Revenue (FBR) vigorously pursued a policy of widening the tax net and addressing under-valuation of real estate by notifying its own valuation schedule for real estate across urban Pakistan that is much higher than the provincial valuation schedule on which real estate transfer transactions take place.
Fully cognizant of the fact that after agriculture, it is the real estate construction sector that has immense employment potential for unskilled, semi-skilled and skilled workers and is also a prime mover for another over three dozen industries like steel, cement, sanitary ware, tiles, chip board etc., etc.; the PTI government had been endeavouring to reinvigorate this sector to kick-start economic activity and generate growth in the economy. It was not an easy task to provide the kind of incentives that were required, especially the amnesty to funds employed, to activate this sector, particularly when the country is in an IMF programme whose declared objective is documentation of the economy and demand compression to tame twin deficits (fiscal and monetary) that had been unsustainable.
Now, that the Covid-19 pandemic has further put pressure on our already fragile economy with potential of massive job losses and pushing record numbers of more people below the poverty line, there is a desperate need to arrest the slide and reinvigorating the real estate- construction sector is perhaps the best possible option under the circumstances. There are, however, hurdles on the way particularly with regard to combating the pandemic that demands lockdowns, isolation and restricted movement of people. The industries that are required to feed the construction activity would need workers to come on the job and for that they would have to commute to work. How it plays out will determine the success of this effort.
There were some plausible reasons to assume that the IMF has been taken on board. Although the Fund has linked its acquiescence or sanction to certain conditions such as those relating to strict compliance with timelines and nature of goals aimed at providing support to most vulnerable sections of society hit by coronavirus-induced lockdowns bringing economic activity to a virtual standstill, it would always want Pakistan to remain on the ongoing Fund programme because this could well be a source of providing jobs to thousands of unemployed labourers as well as to make serious inroads into the large parallel economy in Pakistan. That IMF Board approval has not been sought as yet though one would hope that a less rigid view is taken given the horrendous impact on the quality of life and availability of jobs in the world in general and Pakistan in particular as a consequence of the pandemic.
Furthermore, Pakistan is also currently on Financial Action Task Force's (FATF's) grey list and we are sure that our government is not oblivious to need to satisfy the FATF concerns that may ensue as it is an absolute imperative for the implementation of this effort to kick-start the economy and mitigate the devastation wrought by the pandemic. Last but not least, Adviser to Prime Minister on Finance Dr Hafeez Sheikh deserves praise for successfully persuading the IMF to step up its support to a beleaguered economy now facing the specter of coronavirus. This newspaper is therefore of the view that the construction sector and the concomitant amnesty that flows from it will ultimately constitute a win-win proposition for Pakistan and the IMF.