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• by Admin
• 22-Jul-2022 || 02:19 PM

NEW PROPERTY TAXES IMPOSED BY SHEHBAZ SHARIF:

In the annual budget for the fiscal year 2022-2023, the federal government increased taxes on the real estate sector. Along with raising the advance and capital gain taxes previously imposed on the purchase and sale of real estate, the government has now added a new "Deem Tax" on vacant or extra properties. Taxes and there potential effects on the real estate market would be described here.

In the budget presented for the fiscal year 2022-2023, the federal government has added 440 billion in additional taxes on the real estate industry. According to FBR Chairman Asim Ahmad, the Federal Board of Revenue submitted a proposal to the federal government for 440 billion in new taxes, which was accepted and included in the budget.

    The real state taxes are divided as following:

                    ·    Tax of an amount of 34 billion rupees, on custom duties.

                    ·    Tax of an amount of 316 billion rupees, on income tax.

                    ·    Tax of an amount 90 billion rupees, on sales tax and federal excise duty.

The FBR has resolved to relieve the real estate industry of 85 billion in taxes in the upcoming fiscal year. The new budget will impose taxes totalling 316 billion. The Federal Board of Revenue also makes public the specifics of the applied tax ratio.

DEEM TAX:

On the underused or additional property worth more than $25 million, the FBR has imposed a 1% Deem Tax according to the FBR value. This includes unoccupied homes, vacant lots, abandoned farms, and any land holding with a value more than $25 million but no recurring revenue. The government has estimated that these properties will generate an annual income of 5%, of which 20% will be taxed, or 1% of their FBR value.

In addition to the property valued at $25,000,000 being exempt from this tax, your home is also exempt. The following are some crucial details you should keep in mind regarding this presumed rental income tax:

                    ·    You are not subject to this tax on your own home.

                    ·    It will be assessed based on the total FBR value of all your plots. For instance, if you own 10 plots with a total FBR value of 100 million, the first 25 million will be free from tax, while the remaining 75 million will be taxed at a rate of one percent of FBR value, or 7.5 lacs a year.

                    ·    You will be required to pay the presumed rental income tax on any built-up property, such as a home, a business, or another structure, that is not being rented out.

The wealthiest among us are the main targets of this tax since they invest in numerous plots that don't generate rental income and homes that they rent out etc. without disclosing their rental income.

Additionally, this tax is applicable if a property is rented out as follows:

                    ·    No additional tax will be assessed if the tax imposed under Section 15 of the Income Tax Ordinance exceeds the tax imposed under this Section.

                    ·    The difference in amounts will be paid under this section if the tax imposed under section 15 of the income tax ordinance is lower than the tax imposed under this section.

WITHHOLDING TAX:

Tax withholding, often known as the process of deducting or collecting tax at source, traditionally takes the form of an advance tax payment. It is a useful mechanism and a significant/regular source of income.

Before transferring the land into their name, the property buyer must pay withholding tax. The three real estate sectors will all be impacted identically by this one cause alone. The government raised the withholding tax in the Budget 2022–2023 from 1 and 2 percent for filers and non-filers, respectively, to 2 and 5 percent, respectively.

Assuming any property in Pakistan, be it a house, apartment, or plot, has an FBR value of $1 crore, the withholding tax will change to the following:

According to the new rates, following would be the rates:

                    ·    Tax filler would pay 2 lacs tax.

                    ·    Non tax filler would pay 5 lacs tax.

Generally speaking, an increase in withholding tax results in an increase in transfer expenses, which are seen negatively by the real estate market.

CAPITAL GAIN TAX:

Capital Gain Tax call be defines as the tax imposed on the profit that an investor makes when they sell an investment is. It must be paid in the tax year when the investment is sold. Depending on the filer's income, the long-term capital gains tax rates for the 2021 and 2022 tax years are 0%, 15%, or 20% of the profit. Capital Gain Tax period has been increased to six years.

            ·    Plots/files: If you sell a plot before 6 years, CGT will be due; beyond 6 years, CGT is not due.

                    Ø    Where the holding term is less than a year, there is a 15% CGT.

                    Ø    When the holding period is greater than a year but not more than two years, the CGT rate is 12.5%.

                    Ø    10% CGT is applied where the holding term is greater than 2 years but not greater than 3 years.

                    Ø    Where the holding term is more than three years but not more than four years, there is a 7.5 percent CGT.

                    Ø  Where the holding period is greater than 4 years but not more than 5 years, there is a 5 percent CGT.

                    Ø  Where the holding period exceeds 5 years but does not reach 6, there is a 2.5 percent CGT.

                    Ø  Where the holding duration exceeds 6 years, there is no CGT.

            ·         House/built-up property: If you sell a house before 4 years, CGT will be due; beyond 4 years, CGT is not due.

                    Ø  Where the holding term is less than a year, there is a 15% CGT.

                    Ø  10% CGT is applied when the holding term is greater than 1 year but not greater than 2 years.

                    Ø  Where the holding term is greater than 2 years but not greater than 3 years, there is a 7.5 percent CGT.

                    Ø  Where the holding term exceeds 3 years but does not exceed 4 years, there is a 5 percent CGT.

                    Ø  Where the holding duration exceeds 4 years, there is no CGT.

            ·         Apartment/high-rise: There will be a first-year CGT of 15% and a second-year tax of 0%.

                    Ø  Where the holding term is less than a year, there is a 15% CGT.

                    Ø  Where the holding term is greater than a year but not more than two years, there is a 7.5 percent CGT.

                    Ø  Where the holding term exceeds two years, there is no CGT.

    As you can see, the focus of CGT is on non-productive assets like plots and files, although the impact on the building or development of property, such as houses and other structures, has rarely been amended. In addition, the apartment industry has been given incentives.

We can fairly anticipate that future policies of the Government will also be in this direction since the FBR team publicly said that the purpose of adopting this policy for CGT is to encourage individuals to invest in apartments and vertical expansion.

Impact of these property taxes are as following. The federal government claims that these new property taxes will not only bring in substantial sums of money for the government but will also deter investors and enable the common public to purchase real estate. Additionally, people from the wealthy classes who own numerous homes will be able to pay taxes to the government. The real estate industry supports certain of the modifications that prevent non-filers from investing in real estate, but others, like this "Deem Tax" and the doubling of advance income tax on filers, are likely to have a negative effect on this industry. It is vital to note that many overseas Pakistanis purchase homes in Pakistan as investments or future residences. As a result, a large share of remittances may be negatively impacted if these individuals are deterred from purchasing homes by imposing exorbitant taxes. Investments in real estate are likely to be discouraged by such high taxes. Builders may suspend construction due to limited demand and a high risk of loss due to rising inflation as a result of the cost of construction already having increased significantly over the previous two years.