There’s an age-old saying in Urdu which roughly translates to “all that glitters is not gold.” The federal budget for 2023-24 was tabled in Parliament on June 9, 2023. The government claimed that it had not imposed new taxes; instead, it highlighted tax reduction and exemptions. In the property or real estate sector, the budget proposed a tax relief of 10% or Rs.5 million on the business income of builders for the next three years, and a tax relief of 10% or Rs.1 million for the next three years for construction projects that start after July 1, 2023.
To read more about the federal budget 2023-24: Budget Breakdown: The Most Noteworthy Features of 2023-24 Budget
All in all, it was a budget aimed at pleasing the populace, as the incumbents are going into the general elections. However, if the June 9 budget speech was for Pakistanis, the June 24, 2023, budget speech was for the IMF. This time around, the finance minister admitted to imposing Rs.215 billion worth of new taxes. As the government aims to collect more taxes, it has reversed some of the tax reductions or exemptions previously granted, including those in the property sector.
New Advance Tax on Construction, Residential Businesses
The revised budget has introduced a new advance tax on the construction, development, and sale of commercial and residential properties. This tax will be collected on a project-to-project basis and needs to be paid in four equal installments throughout the tax year, according to the newly notified tax rates.
Previously, the government had proposed a concession for individuals of Pakistani origin, exempting them from advance tax on property purchases. However, this concession is now being removed. The tax credit, which was announced in the budget speech for the construction of houses, was subsequently withdrawn.
The revised budget has also made changes to the perpetual tax amnesty available under section 111(4) of the Income Tax Ordinance. Initially, the limit for remittance from outside Pakistan in a tax year was proposed to be increased to $100,000, but this proposal has been revoked. Now, the amnesty limit remains at the previous level of Rs.5 million.
Who Will Get Affected?
Individuals who earn income from activities related to the construction and sale of residential, commercial, or other types of buildings, as well as the development and sale of residential, commercial, or other plots of land.
A New Condition for Sellers of Properties
Now, before registering or transferring an immovable property, sellers or transferors must provide proof that they have paid the tax under section 7E (tax on deemed income) of the Income Tax Ordinance 2001. Otherwise, any person responsible for registering or recording the transfer of immovable property cannot proceed with the registration or transfer unless the seller or transferor has fulfilled their tax liability under section 7E. The evidence of tax payment needs to be provided in a prescribed mode, form, and manner. Furthermore, to avail the exemption from tax on deemed income under section 7E, the government has made it mandatory to file a tax return and be listed as an active taxpayer.
Section 7E (tax on deemed income) of the Income Tax Ordinance 2001 is not applicable to the transfer of immovable properties in Punjab due to a Lahore High Court order. This applies to both filers and non-filers alike.
In summary, the new provision requires property sellers or transferors to prove that they have paid the tax under section 7E before registering or transferring the property. The tax rates for deemed income have been specified for the tax year 2022 onwards.
Do you think these measures would jumpstart the sluggish property market in Pakistan or further deepen the slump? Please leave your thoughts in the comments section.