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Decoding Imran Khan’s Stimulus Pkg for Construction

IRSHAD SALIM — I tend to weigh on the stimulus package for unleashing construction as an industry with caveats.

The way I understand from what I’ve read (official SRO is not public yet) about the stimulus — I don’t call it relief by any count, construction has been declared industry (better late than never). What it means in street language is that this new industry can now flourish under governmental and regulatory authorities patronage and control respectively. However, if patronage becomes toxic (I mean with subsidies) the infancy of this industry may end up becoming stunted and obese. Also, if regulatory control would be the usual and similar to other operating entities — restrictive, inhibitive, coercive in form and substance, then I fear it could end up as another industry looking for subsidies, take-more-give-less syndrome — “silent partners” notwithstanding.

Salient feature I note are:

  1. Builders and Developers don’t have to withhold taxes from the vendors and subcontractors, etc.
  2. Federal tax will apply either on per sft sale/cost price basis or on pct of sale price.
  3. The arrowhead of the initiative is the low-income housing for those who can’t afford outright purchase, and with the govt. owning the land their home is built. Investors will own the structure and tenant shall own-as-you-pay basis, akin to townhouses and apartments in the West.
  4. Investors do not have to declare source of income and critics interpret it as an “amnesty” which earlier did not draw enough to the govt kitty.
  5. For #3 above to happen, commercial banks will be allowed to carry home loan portfolio upto 7pct of total loans they make for business. Mortgage banks will follow. All these shall be regulated by refinancing of mortgage loans on federal level with the World Bank’s help.
  6. One window operation is envisaged.
  7. Some 30bln rupees have been set aside as startup money (being called ) subsidy for #3.
  8. In KP and Punjab provinces, the initiative will move without much hiccups as PTI rules in these two.
  9. A board will also be formed to address all issues and matters related to the industry.
  10. If any investor invests in construction projects under Naya Pakistan Housing Authority, 90 percent fixed tax would be waived off and he would have to pay only 10 percent tax.
  11. Sales tax is also being brought down in coordination with the provinces. There would be no capital gain tax for a family that sells or purchases a house.
  12. Foreclosure laws, banking rules changes including any other laws needed to boost all of the above are expected to be approved by the parliament, a top PTI official tells me.

It’s a good news at home and abroad. Overseas Pakistanis and potential investors (from Turkey, Malaysia as an example) may take advantage of the initiative. Foreign investor or bidder may ask though that we should have these too also in all bids: No Collusion Affidavit from competing bidders; Current (latest) Stockownership statement from each bidder; and corporate resolution authorizing an officer to sign on all official documents.

All these will require time and effort even in the best case scenario. Meanwhile, taking advantage of the enabling and facilitative environment apparently available in the above, we ought to consider putting immediately our daily wage earners and youth (as practicably as possible) to helping put food on the table for their family. They are in rural (nearly 66%) and urban (34%). We have two flaming red flags now: daily wage earners + the youth. And time is of the essence.

A SMART ( Specific, Measurable, Achievable, Realistic, and Timely) KISS (Keep it simple stupid) groupthink is required by managers who shall be tasked to articulate the initiative. Sans this approach the above long-term initiative in the present situation could be a square peg in a round hole — in the long run it’s a tenner by all means.

For now, may I suggest some but not limited to the following:

Example #1: Engage and enhance the construction ecosystem we already have to re-build sidewalks, streets, build public toilets in every markaz, let our handyman provide maintenance services to public places, institutions, etc.

Example #2: Pay them or make it mandatory that they be paid weekly or fortnightly so they meet their expenses timely until the rest happens over time and scale. Add unemployment coverage as cost to do business either self-employed or employed.

Example #3: Encourage youth to form small businesses with govt. partnership. Build neighborhood-based and rural projects. There are pathways (paghdandis), culverts and earthwork structures which need to be rehabbed. Seek manpower-intensive areas of engagement in this sector.

If feel good factor does not trickle down to our men on the streets and in neighborhoods, the disconnect may eat away the shine.

There are enough “infrastructure” to repair, rebuild, rehabilitate countrywide. Why wait. These can be couched in Public Sector Development Program without “pork barrel”. For instance, the street I live in needs immediate rehab as well as revitalization with streetscape and streetlights, etc. Was thinking of doing it on self-help basis this summer.

The writer is business, construction consultant and analyst based in Islamabad. Email: [email protected] Tweet him at twitter.com/irshadsalim

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