The new federal government of Pakistan released the budget for 2022-23, and it has made some new policies regarding the real estate industry.
If you have been wondering what these policies are and how they will impact your properties, your questions will hopefully be answered in this blog.
The federal government has imposed 440 billion on taxes in this new budget. Asim Ahmed, who is the chairman of FBR, has said that the federal board of revenue has submitted a proposal of 440 billion in new taxes, which was approved in the budget for this year. This amount is divided into the following three categories:
- 34 billion for custom duty
- 316 billion for income tax
- 90 billion for sales tax and excise duty
Chairman also informed the press that FBR had provided relief of 85 billion in taxes for the real estate sector, and a total of 316 billion will be imposed in the next budget. New Pakistan Government has announced three central policies regarding taxation in real estate, and they are as follows:
Increase In Withholding Tax
Withholding tax is to be paid by the purchaser of the property before they transfer it to their name. The Government of Pakistan has increased the withholding tax, which was 1% and 2% for the filers and non-filers earlier; it is now 2% for the filers and 5% for the non-filers. This is a massive gap in the tax, especially for the non-filers and will undoubtedly increase problems in the transfer of ownership.
Even though the real estate market perceives an increase in withholding tax as a negative factor since it makes the transfer of ownership more difficult, it is not a big enough change to have a significant impact on the market or investors. What can be done better is that the non-filers might consider becoming filers due to this huge increase in taxes; they might want to save themselves the trouble of paying extra taxes as non-filers.
Capital Gain Tax And Implications
Capital Gain Tax (CGT) is only applicable if the investor has made a profit on his investment in real estate. The construction and buildup property sector has hardly been revised. It is clear from this change that the reason for FBR to adopt this policy is to motivate people to purchase apartments, and it is safe to assume that future policies might go in the same direction.
Deem Tax On Non-Productive Property
FBR has made a new policy for non-productive properties that may include houses, shops, buildings, or any land that is not being productively used. This is the new name of wealth tax, and the government has imposed a 1% tax on properties that are worth over 25 million but do not have a regular income. The government has deemed the payment of such properties 5% per annum, out of which 20% will be taxed. The house you live in right now is exempted from this policy, but if you have built a property house or for commercial use, but it is not being rented out, this tax will be applicable to you.
The target of this tax is mainly the rich people who invest in dozens of properties that do not create monthly income or houses that they rent out without declaring their rental income. This change as deem tax might not affect the rich as much, but it will surely be a big hit for the middle and upper-middle class people. The focus of this policy is to discourage investors from holding non-productive properties.
Impact On Real Estate
The policy change will have both negative and positive impacts on the real estate market. Since the policies are not that beneficial for plots, files, and unproductive areas, it can be assumed that there will be a downfall in that sector. However, there has been no significant change in housing policies and commercial property, and apartment buying is incentivised, which is suitable for the respective sectors.
Looking For Advice?
Investing in real estate can be the best decision you ever make, but it can also be bewildering at the same time. You might need professional help to guide you, so you don’t make any wrong decisions. Muskun Investments has a team of professional advisors who can help you make the best possible decision regarding your investments.
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