Majority of 220 million Pakistanis seem to be getting grinded between two millstones – The Original Budget and the Revised “IMF Approved” Budget.
To know more about the original revenue targets and tax proposals, read: Budget 2022-23 Pakistan: Salient Features
To read more about the Revised Budget, click on: Pakistan’s “IMF Approved” Federal Budget: What It Means for the Common Pakistanis
In the hoopla of increasing petroleum prices, taxes on companies and their employees, one very important sector has gone unnoticed – Pakistan’s mercurial real estate or property market.
As the latest federal budget contains many new proposals regarding this sector of the economy, therefore it’s important to analyze them.
Here’s what you need to know about the latest budgetary proposals vis-à-vis the property sector.
- 5% tax on income on non-productive, immovable property, unutilized residential, commercial and industrial plots and farm houses
- One personal property will be exempted from this tax
- 15% increase in Capital Gains Tax from 4 to 6 years on immovable property
- Increase in Advance Tax on the purchase of immovable property.
- For non-filers: Now 2% – Proposed 5%
- For filers: Now 1% – Proposed 2%
- 1% Capital Value Tax (CVT) on Pakistanis living abroad on their immovable properties abroad. This will also apply on their foreign liquid assets
A cash-strapped government was expected to lay more taxes and increase the rate of existing taxes in the federal budget and it has. The goal obviously is to raise as much revenue as possible and those who own multiple properties are the obvious target.
It is hard to criticize the government trying to tax the rich. To explain in the layman’s terms, a person who could have invested Rs.10 million in starting a small to medium business, employing 2-3 people, instead invests the same amount in buying a plot of land, hoping to make money out of it one day. The plot of land doesn’t create any sort of economic activity – it doesn’t create jobs, etc. In this budget, this person will be penalized.
A 15% increase in Capital Gains Tax will also affect the rich. This proposal should be seen in context of the government trying to discourage people from owning non-productive real estate. Once again, this tax is paid on the profit made by selling a property, etc. It might encourage people to take out their investments from property and start small to medium businesses. It is one of the many ways to generate economic activity in this situation.
In this budget, the non-filers, once again, have been targeted with more taxes and this is being done to bring them in the tax net. This proposal must be appreciated as it is a known fact that the majority of the rich in Pakistan do not pay full share taxes.
What, however, doesn’t make much sense is 1% CVT on the foreign based assets of Pakistanis living abroad. If the government plans to go through with this proposal, it should be able to explain how it proposes to implement this measure.
A Soft Reminder
Once again, these are proposals and not the approved policy yet, till this budget gets passed and approved by the Parliament.
We are particularly interested in hearing from those who are in the property business. Please leave your comments in the section below.