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Local construction industry crumbles

THE construction industry has declined sharply since 2000 due to the unstable marco-economic environment, forcing most construction companies to either relocate to neighbouring countries or close shop.

Presenting the 2009 Mid-term Fiscal Policy last week, Finance Minister Tendai Bit said viability challenges in a highly unstable economic environment were the main reasons of the downfall of the construction sector.

“As a result, between 2000 and 2008, the sector persistently declined by a cumulative 125% forcing most construction companies to either relocate to neighbouring countries or shut down altogether,” Biti said.
According to the minister, the construction industry recorded the biggest decline compared to other sectors of the economy during the period under review.
The construction industry is a barometer of economic activity. It has strong forward and backward demand linkages with the rest of the economy and promotes strong multiplier effect in the economy.
“The strong demand for inputs such as cement and other building materials such as steel and electrical products, roofing material, among others, stimulates production and creates jobs in other related sectors,” said Biti.
He said the construction sector was also important in meeting other critical social obligations such as housing delivery.
Biti said the 5% capital gains tax on immovable property was set after providing for an inflation allowance on the purchase price of the property.
The inflation allowance is calculated using the difference between the “All Items” Consumer Price Index (CPI) in the month of disposal and purchase divided by the CPI for the month of purchase.
Although in the past capital gain has been indexed for inflation, the inflation-adjusted cost of capital assets has become impractical to determine due to unavailability of consumer price indices for the last half of 2008.  Gains arising from disposal of immovable property purchased after February 1 2009 will be subject to capital gains tax as provided for in the Capital Gains Tax Act.

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