Hike in FED on cement to push construction costs

Pakistan's construction industry is set to experience significant cost implications as the Federal Excise Duty (FED) on cement has increased from 1.5% to 2% in the 2024 budget.

Industry experts predict the change will drive up project costs across the sector. 

"The increase in FED will inevitably lead to a surge in cement prices, placing additional financial strain on ongoing and upcoming construction ventures," noted Sarah Ali, a tax policy analyst at Islamabad Policy Research Institute, a think-tank.

"Moreover, the budget revisions include adjustments to property tax, which are set to affect real estate developers and homeowners alike. The revised property tax structure is designed to generate additional revenue streams for the government but could potentially dampen investment sentiment in the property market. Higher property tax might deter prospective buyers and investors, thereby impacting the overall liquidity and growth trajectory of the construction sector." 

She further said that monopolies and cartelisation in the supply system of construction material were also discouraging competition in the field, and customers had to pay whatever price suppliers set.
She urged relevant authorities to keep a check on the prices of construction materials like other industries to break monopolies and cartelisation.  

Meanwhile, talking to WealthPK, Hassam Ali, a member of the All-Pakistan Real Estate Association, said the construction sector had a share of 2.5% in the GDP of Pakistan. "Policymakers should devise suitable policies that address these challenges in order to evolve and improve the construction sector." 

He called for a better policy to benefit the construction industry because it contributed significantly to GDP and job creation.

"The government needs to facilitate the sectors and industries that have the potential to stabilise the economy," he maintained.

According to the data released by the All-Pakistan Cement Manufacturers Association, local cement dispatches during May 2024 stood at 3.357 million tonnes compared to 3.432 million tonnes in May 2023, showing a decline of 2.17%. Exports, however, increased by a massive 72.16% as the volumes increased from 533,215 tonnes in May 2023 to 917,962 tonnes in May 2024.

During the first 11 months of the outgoing fiscal year (11MFY24), total cement dispatches (domestic and exports) were 41.730 million tonnes, which was 3% higher than the 40.516 million tonnes dispatched in 11MFY23.