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Federal Govt Imposes New Taxes On Real Estate in Budget 2022-2023

Posted by admin on June 17, 2022
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Federal Govt Imposes New Taxes On Real Estate in Budget 2022-2023: Learning about property tax can be a complex element because tax rates are different for every province in Pakistan. All the annual rental value of the property in Pakistan is based on Urban Immovable Property Tax Act. All of the provinces have their own which is why the property tax in Pakistan differs. The rental value does not signify that the property needs to be rented out instead, it means that it is an assessed value that is given by the government if that building was left out. Hence, this is another element that makes the tax rates different in the provinces. It depends if the property has been rented or if it has been self-occupied.

There have been some disagreements between some provinces when it comes to the annual rental value. The Excise, Taxation, and Narcotics Department Sindh, it does not matter whether the property has been rented or not which is why the tax is imposed at the rate of 25% of the annual rental value of the property. Whereas, on the other hand, the Excise, Taxation, and Narcotics Control Department in Punjab says that the annual rental value is determined by whether the property, commercial or residential has been self-occupied or rented. This brings a 5% annual rental value that is imposed as tax.

The government tax ratio on Real Estate

The tax ratio on real estate keeps changing with time. Therefore, it is important to know what are the changes and the settlement today so that there is no trouble.

  • 2020

In the year 2020, according to the amendment in the Income Tax Ordinance, the holding period and tax rate on CGT were reduced. This was done on the dismissal of the immovable property. Therefore, a property that was on hold for a long period of time was taken to see that the property was not bought for earning any profits. Hence, this led to lower taxes. Whereas, a shorter holding time duration meant a higher amount of CGT which earned higher tax rates. Therefore, now with the current amendments, you are able to hold an immovable property for not more than 4 years. The percentages of the capital gain were narrowed down to the following:

 

  • No CGT is taxed after 4 years of holding property
  • The differences between plots and constructed property are cut off
  • 25% capital gain if the holding period exceeds 3 years but not 4
  • 50% capital gain if the holding period exceeds 2 years but not 3
  • 75% capital gain if the holding period exceeds 2 years but in less than 2 years
  • 100% capital gain if the holding period is less than 1 year

The rate of CGT after the dismissal of the immovable property had also been broken down by half.

  • 2021

In the year 2021, the new changes benefitted the non-resident Pakistanis. The change that was brought up was to facilitate the non-residential individuals who wanted to open non-resident Pakistani Rupee Value Accounts. These were as follows:

  • Offered tax exemptions for local manufactured mobile devices and electric vehicles
  • Extended 4% super tax on banks
  • Made a person responsible for attesting, recording, and registering any transfer of immovable property to collect any advance tax. If the buyer holds an NRP as well as POC or NICOP, the tax will be the final one for the buyer.
  • Imposed withholding tax on different vehicles which has different engine capacity only to those who sell locally manufactured vehicles and within 90 days of delivery.

 

  • 2022-2023

The chairman proposed to impose a 5% tax on the income on non-productive immovable and also un-utilized plots and farm houses whether commercial, industrial or residential. Moreover, the FBR will only give an exemption of one property but it will minus Rs 25 million from the open plot. Hence, the FBR will collect a total of Rs 30 billion by using this rule. It was also added that the FBR proposed to increase 15% capital gain tax from 4-to 6 years only on immovable property. This sets out to measure that Rs 40 billion revenue will be collected.

The chairman further added that the FBR also proposed an increase in the sector of advance tax on the purchase of the only immovable property. This was placed only for non-filers from 2% to 5% and 1% to 2% filers. This would create revenue of Rs 65 billion in the next year. There will be a 1% capital value for Pakistani who are living abroad on foreign immovable properties as well as for liquid foreign assets. This will collect approximately Rs 18 billion. The FBR also made changes when it comes to vehicles. This was done to only those vehicles that had 1600 cc and it is divided by:

  • Rs 150,000 advance tax on 1601 to 1800 cc
  • Rs 200,000 advance tax on 1801 to 2000 cc
  • Rs 300,000 advance tax on 2001 to 2500 cc
  • Rs 400,000 advance tax on 2501 to 3000 cc
  • Rs 500,000 advance tax on above 3000 cc

The impact of the government’s tax on the real estate market 

All of these rules have discouraged numerous taxations to invest in the real estate market. The cost of construction has significantly risen in the time span of the last 2 years. This has caused numerous business downfalls and now, builders may also stop working due to the less demand. However, this is largely benefitting the Federal government as these new laws of tax in the real estate sector are creating huge revenues. Hence, this has given them the advantage but it has let numerous investors down by looking upon the strict rules.

The government also discouraged the investors and empowered the general public to buy a property. Hence, it is giving minimal benefit to the citizens as most classes who own properties before can easily tackle the situation at hand. Numerous overseas Pakistanis but property in Pakistan for investment but now that is also discouraged due to the high imposing tax rates.

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