The cement industry of Pakistan has seen rapid growth in recent months, which is widely attributed to the tax amnesty scheme introduced by the government in April 2020. However, on Jan. 1, 2021, the government extended the same amnesty till the end of this year to keep the economy running amid the coronavirus pandemic.
While most economies around the world struggled amid the pandemic, Pakistan experienced what can be safely referred to as a construction boom, which, in turn led to the creation of employment opportunities.
Let’s now take a detailed look at Pakistan’s construction sector, what positive change the amnesty has brought, and how all of this helped boost Pakistan’s cement industry, in particular.
TAX AMNESTY SCHEME 2020-2021 & THE IMPACT ON THE CEMENT INDUSTRY OF PAKISTAN
Prime Minister Imran Khan in June 2020 announced a comprehensive construction relief package. This is an Amnesty Scheme for the construction sector, designed to sustain the economic growth of the industry. Key takeaways from the scheme include:
- Developers and builders of the low-cost housing projects across the country now enjoy a 90% tax exemption.
- Developers and builders have also been exempted from paying the withholding tax on the purchases made for different types of construction materials and other related services.
- Capital Gains Tax (CGT) of 5% to 20% has been abolished, and people who sell off their
- properties during this time, will not be required to pay any amount.
- Tax on sales of immovable properties has also been halved from 10% to 5%.
- Under FBR and Construction Relief Package 2021, investors will continue to enjoy tax exemptions by disclosing their sources of income.
- The deadline for the completion of the projects onboard with the FBR tax amnesty scheme has also been extended till the end of 2021.
- The State Bank of Pakistan (SBP), and commercial banks will continue offering loans worth PKR 378 billion till December 2021 under a mortgage financing scheme.
- For low-cost houses’ construction, the government will also offer a subsidy with an allocated budget of PKR 30 billion. The government will also provide an additional grant of PKR 300,000 for each of the first 100,000 constructed houses.
With people exempted from paying most property taxes, the amnesty scheme has created a lot of uproar in the country. From the above clauses, it is evident that the government is fully geared towards instigating rapid construction in the economy. With these measures in place, the developers are also interested in developing their projects much quicker to benefit from the scheme.
CONSTRUCTION SECTOR DRIVING DEMAND IN CEMENT INDUSTRY OF PAKISTAN
Typically, there are three types of constructions: buildings, infrastructure, and industrial. Building construction can be further divided into residential and non-residential. In Pakistan, most of the real estate construction has always been centered around metropolitan cities, however, with the China Pakistan Economic Corridor (CPEC) coming into effect, extensive development projects (especially under Specialised Economic Zones) have been planned and are under development. The Eastern and Western routes of this multi-billion-dollar project will create jobs in different sectors, but initially, the plan is to accommodate most of the people in the construction industry as infrastructural projects are undertaken.
What the government did at the onset of the pandemic was to create activity in this particular sector, as a way of starting a chain of activity in other associated industries as well. This was done to keep unemployment levels lower in the country, and to keep the economy afloat. As construction is carried out throughout the country, naturally, the demand for cement also goes up significantly.
A CLOSER LOOK AT THE CEMENT INDUSTRY OF PAKISTAN
Pakistan has 24 cement plants. These cement plants are distributed across the country; mostly around the population centers. The Northern Zone consists of Upper Punjab, KP, Azad Kashmir and areas of Balochistan close to KP and Punjab. The Southern Zone, for the most part, is made up of Sindh i.e. the areas close to Karachi. The cement industry contributes billions to Pakistan’s economy.
The All Pakistan’s Cement Manufacturers’ Association (APCMA), the apex body of cement manufacturers in the country, documents data and updates pertaining to the cement industry of Pakistan; where it currently stands, and what to expect in the future. It also maintains up-to-date data about cement usage, demand, capacity, and finances.
The APCMA has recorded a 16 percent growth in cement dispatches during the first half of the current fiscal year (2020-21). The volume increased to 28.628 million tonnes from 24.751 million tonnes around the same time last year. Local dispatches have increased by 15.9 per cent in July-December 2020 to 23.61 million tonnes from 20.373 million tonnes in July-December 2019.
But not all of this cement being produced is being absorbed in the country, since a lot of it is also being exported. Cement exports also increased from 4.377 million tonnes in July-December 2019 to 5.017 million tonnes in July-December 2020, indicating a growth of 14.6 percent.
Sources in the industry predict local cement dispatches and exports to grow by 16% and 38% year on year basis. This means that the country is producing enough to meet local increased demand, and also to earn a profit on it.
WHAT SHOULD DEVELOPERS EXPECT?
Similar packages have also been introduced in energy sectors as well. These together have helped boost the country’s economy and lead all associated industries of the construction sector on the path of continuous progress. These are all good, strong indicators, signaling a continued uptick in activity in the country’s cement industry as well, as exemptions in the energy sector benefit the cement industry as well.
Developers should make the most of this relief package and start constructing their projects that they have been holding off for some time. Now is the time to make the most of these government packages!