Good Day Readers,
I hope you all are great and doing good in life. Recently Government has announced a tax amnesty scheme for real estate industry. Many real estates investors and buyers inquired me about “what actually tax amnesty scheme is”? Lot of people opposed this scheme, It may be political but here I am gonna talk especially how it is related with our industry. Few thinks it will not be beneficial for real estate sector and as far I have read and research I think it will be beneficial for real estate.
First of all Non – filer cannot purchase the above 4 million. In case you want to purchase property above 4 million your have to be tax filer.
Secondly D.C rates and FBR rates will be abolished. Now you have to pay 1% advance income tax and 1% provincial tax, and you have to pay these taxes on actual value. Extras like CVT, Stamp, duty. TMA and AIT will be abolished.
How this will be beneficial for property buyers, lets suppose and implement this new scheme on real scenario.
Suppose you purchase a plot in Jasmine block, Sector C, Bahria town Lahore in one crore rupees.
Previously tax details are:
D.C. rates 420,000 / Marla, D.C Value of 10 Marla Plot is 42,00,000.
FBR rates 456,000 / Marla FBR Value of 10 Marla Plot is 45,60,0000.
CVT, Stamp duty and TMA taxes are applicable on D.C. rates, while Advance income tax is applicable on FBR rates.
AIT is the difference between D.C. rates and FBR rates.
Stamp Duty 3% = 126,000
CVT 2% = 84,000
TMA Tax 1% = 42,000
Advance Income Tax Non Filer 4% = 182,400
Advance Income Tax Filer 2% = 91,200
AIT = 10,800
Total Non Filer Taxes 445,000
Total Filer taxes 353,000
Transfer Fee Bahria town = 145,000
Grand Total = 590,000 (Non – filer)
= 498,000 (Filer)
Now if you purchase plot against new system Jasmine block, Sector C, Bahria town Lahore in one crore rupees. which will be applicable in July 2018 most probably.
Now you have to pay only
Advance income tax 1% = 100,000 (Adjustable income tax)
Provincial Tax 1% = 100,000
Bahria town Transfer fee = 145,000
Total = 345,000
there is a common misinterpretation that advance income tax is on property, while its not, it is a income tax which is adjustable against your income. Previously you were paying 262,800 in the form of non adjustable tax on buying on property. whereas previously advance income tax was 2% and 4% simultaneously. now its only 1% provincial tax which will be non-adjustable.
Miftah Ismail “Finance adviser said”:
The most fundamental reform we are seeking to bring through our Economic Reform Package is in real estate. From July 1, 2018, we will require everyone to be a registered tax filer in Pakistan in order to buy property.
Secondly for properties registered after July 1, 2108. The government will have the right to acquire any property within 6 months of registration by paying 100% more than the registered price. This means that people will not register properties at less than 50% of market value. We will reduce our adjustable advance income tax rate to only 1% and are asking the provinces to reduce their total property registration tax to 1% also. This will be a revolution in the real estate market, will help document the economy, will create legal wealth in Pakistan and thus will make available billions for investment.
For properties registered after July 1, 2019, the govt will have the right to acquire properties for 75% more than the registered price and for properties registered after July 1, 2020, the govt’s preemption rate will drop to 50% and stay at that rate for future years.
With these steps we expect properties in Pakistan to be registered at at least 67% of true market value. And we will let citizens decide the value. We will eliminate the FBR rate and are asking provinces to get rid of DC rates. This way we will be progressively getting registration of properties to come to actual market values and due to the reduction of taxes we will not burden the taxpayers.
Impact on Overseas Pakistani’s
“It is not mandatory for overseas Pakistanis to register as tax filers. And properties bought before July 1, 2018 will be under the existing rules and laws”.
My findings from Miftah’s saying:
One thing is for sure, government is trying convert economy from undocumented to documented. Secondly abolishing D.C. rates is depending on provincial governments hand. If they succeed to convince province to abolish the D.C. rates it will be very beneficial for real estate sectors, but the question is why province reduce their taxes from almost 6% to 1% as it is the reason of lot of revenue collection for provincial government.
Secondly, overseas Pakistani issues and concern are real and needs to be adjusted.
Effect on Real Estate:
- I believe a lot of people will like to take advantage of this scheme, thus Govt will also get billions of rupees in terms of 5% penalty.
- In general I see number of transactions rising before July 2018 as more people who are scared of a change will most likely prefer to enter into real estate before they take effect.
- Those people who are still willing to remain non-filers, only option left for them are properties lower than 4 million and there are few options specially in bahria town, Bahria Orchard Lahore, Bahria Karachi and small plots.
Those properties where rates are higher than their actual values, where you feel its a place for money parking,you may see a correction, while smaller and cheaper properties for middle class will remain stable and may seems small appreciation with time. With the passage of time people get used to it and investors will feel more comfortable dealing with a simple and systemic taxation system.
I tried to cover as much as possible. I knew there must be something left. If you need any other assistance or information in real estate matters. Feel free to contact.
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