Contribution of the Construction Sector to Pakistan’s Economy

Pakistan’s economy, like those of all other nations, took significant damage in 2020 as a result of Covid-19, which brought the country to a state of lockdown. The impact is significant everywhere since the world economy has been in a recession and the GDP is expected to shrink by 3.8%, a larger percentage than the 0.4% loss seen after the global financial crisis in 2009. What can be done to strengthen the economy and combat the impacts of the ongoing worldwide pandemic is the question that arises in this situation.

Every country’s economic development is fully dependent on the significant operations occurring in the mother industry. Any industry that is selected as the mother industry will put up the most resources and effort, which will have a big social influence.

 The real estate and construction sectors are the most enticing economic areas with the greatest potential to strengthen any nation’s whole economy, according to a detailed examination of the developing economies of developed nations.

Role of the Construction Sector 

Pakistan has the ability to perform well in every situation and has a critical position in the area. If we apply the same principle to the economy of Pakistan, it becomes evident that there is a significant unmet need for high-quality homes and that Pakistan’s real estate and construction industries have the potential to see growth. It can employ a huge number of both skilled and unskilled employees, easing the unemployment problem and creating income for the nation, boosting the country’s overall economy.

Nearly 42 sub-sectors, including brick, cement, cables, fixtures, glass, aluminum, wood, paint, tiles, transportation, and warehousing, are stimulated by the building sector. These ancillary industries all contribute significantly to the simultaneous growth of wealth and employment. 

It is stated that every house construction project results in creating two permanent jobs, either directly or indirectly. The danger is that, despite the building sector’s enormous potential, it only contributes more than 2% of the country’s GDP barely, as opposed to 9% for other regional countries like the UAE. This clearly shows how the sector is doing.

One thing that every industry expert agrees on is that the present government’s leadership has revolutionized the construction industry and is streamlining its operations. However, in order for the government to achieve the desired results, a number of issues still need to be resolved on a formal level. And because it can aid in the nation’s recovery from the economic catastrophe brought on by the pandemic, the government must investigate this area. 

Local investors and stakeholders in the construction business are happy with the regulatory frameworks, however, foreign investors who want to participate in the real estate sectors of Karachi, Islamabad, or Lahore always find it difficult to invest in local real estate projects.

Reasons to Invest in The Construction Sector 

• The GDP contribution of Pakistan’s construction industry is up to 380 billion PKR.
• According to the Association of Builders and Developers, there are currently 1.1 trillion rupees worth of building and housing-related court proceedings waiting.
• The housing and construction industries have a potential market value of Rs. 2,705.5 billion by 2028, according to Fitch Solution.
• The building sector has been recognized as an industry. Changes to the tax ordinance provide tax relief to businesses in the sector. Tax policy changes offer builders, developers, and contractors a variety of benefits. These include reduced tax rates and the elimination of several taxes that formerly hampered the sector’s ease of doing business.

Incentives From the Government 

The construction industry is now recognized as an industrial venture under the modified Income Tax Ordinance, qualifying it for perks and concessions offered to other businesses.

New Fixed Tax Regime for Eligible Builders and Developers Beginning With the Tax Year 2020 and Onwards 

For qualified builders and developers, an optional “Fixed Tax Regime” on profits from the sale of structures or plots from a new or unfinished current project has been implemented beginning with the tax year 2020. Prior to this, taxes were assessed based on net income. According to rule 10 of the eleventh schedule, the rate and computation of obligation are decided.

Exemption from Withholding Tax on Building Material Purchases

Taxes on the acquisition of construction materials shall not be withheld from eligible developers or builders. A builder or developer company’s payment of dividend income to an individual out of the profits and gains from a project is exempt from taxation and from the need for tax withholding.

Tax on Capital Gains Is Exempt

Individuals are not required to pay income tax on capital gains they make when selling their personal or family residences.

Banks Will Expand Loans to Finance the Housing and Construction Industries

The State Bank of Pakistan (SBP) has made the decision to provide banks with the required targets in order to encourage housing and the development of structures (both residential and non-residential) in Pakistan. As a result, by December 2021, each bank must make sure that financing for housing and building construction (including residential and non-residential) accounts for at least 5% of their domestic private sector credit.

Construction Sector Likely to Grow 92% in 7 Years 

In FY2021, the industry contributed Rs1.409 billion to Pakistan’s Gross Domestic Product (GDP), up from Rs1.231 billion in FY2020, according to research published by Pakistan Credit Rating Agency (PACRA).

While its contribution to GDP fell from 3.2 percent in FY2019 to 2.8 percent in the previous year, it saw an increase of 14.4 percent year over year in FY2021.

However, due to increasing government concessions and aggressive private sector investment, construction activity in the industrial sector climbed 14.4% in FY2021.

With an annual growth rate of 14.4%, the construction industry contributed over PKR1,409 billion (US$7.8 million) to Pakistan’s Gross Domestic Product (GDP) in 2021.

According to the PCRA, government contracts for the development of infrastructure, highways, offices, and airports account for the majority of construction earnings.

According to the report, Pakistan will continue to move up the rankings as more massive projects are built as part of the China-Pakistan economic corridor.

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