Last Updated on April 1, 2024 by Ali Hamza
The annual budget of Pakistan brings about many changes in the overall revenue generated by each sector. The new regulation set forth by the FBR indicates how the real estate industry will generate revenue in the long run, for the government and for the owner of any property.
The budget of 2021 – 2022 has brought about many changes that will impact the real estate sector. These changes have a positive and a negative impact overall.
The new taxation scheme have been announced, and these taxation schemes set the overall mood for real estate. The biggest change in the new taxation scheme announced is the introduction of deem tax. Along with this there are other tax implications as well.
Capital Gain Tax
The Capital Gain Tax is applicable to all profits gained on investments in real estate, this is applicable to all forms of property including residential land, commercial land, farmhouses, and apartments. The new capital gain tax is applicable to all property bought within the last four years, and after the 4 year markup the tax gradually decreases. These changes can be seen as:
For 5 Million Rupees Profits
The previous tax for a profit on 5 Million was 2.5% tax, which has been now increase to 3.5% tax. A total increase of 1% tax has been made.
For 5 to 10 Million Rupees Profit
The previous tax for a profit on 5 to 10 Million was 5% tax, which has been now increased to 7.5% tax. A total increase of 2.5% tax has been made.
For 10 to 15 Million Rupees Profit
The previous tax for a profit on 10 to 15 Million was 7.5% tax, which has been now increased to 10% tax. A total increase of 2.5% tax has been made.
For 15 & Above Million Rupees Profits
The previous tax for a profit on 15 to above 15 Million was 10% tax, which has been now increased to 15% tax. A total increase of 5% tax has been made.
The jump from maximum 10% to now maximum 15% has been made. This overall has a positive impact on the real estate sector of Pakistan. The only negative aspect of this tax is that with each budget a new taxation scheme is announced. This causes an instability and confusion in the real estate market. These new taxes will apply to any property bought in the year 2021 and 2022, and property bought 4 years before this.
Rental Return Tax
The second taxation changes have been made to Rental Return Tax. This tax is applicable to all properties on rent, and to an income generated by these rented properties. These taxes apply to an annual income on the rented properties. This is applicable to all forms of property collectively as residential property, commercial property, farmhouses, and apartments of huge housing communities like Blue World City Islamabad, and Park View City Islamabad. An overall decrease can be seen the Rental Return Tax. The overall Rental Return Tax has been reduced in the new annual budget for 2021 – 2022 Pakistan. These changes are:
- For a yearly income of 3 Lac to 6 Lac will be due for 5% tax.
- For a yearly income of 6 Lac to 20 Lac will be due for 10% tax.
- For a yearly income of 20 Lac to above 20 Lac will be due for 25% tax.
These taxes were at a maximum of 35% of tax, which have been reduced to 25% tax. This is a positive change, as the government of Pakistan is promoting utilizing the already existing properties to be rented out. Also, a reduction in the tax promotes more people to pay off the taxes, and avoid tax frauds.
Deem Tax
The new introduction has been made for Deem Tax by the FBR in the new annual budget of 2021 to 2022 Pakistan. The FBR has imposed 1% Deem Tax on all properties that are unused or are just sitting idle. These properties do not include any form of property that generates a regular income. The tax is applicable to all forms of property including residential property, commercial property, farmhouses, and apartments. The Deem Tax will only apply to properties that have a net worth of more than 2.5 crores. This tax will not apply under two conditions, which are:
- If the properties is making only 5% income per annum
- This also does not apply to first property owned, this applies to multiple property owners
This new tax is a promotion to increase rental of already existing properties, rather than buying new properties.
Advance Income Tax
The Advance Income Tax is applicable on all immovable properties. This tax applies to both tax fillers and non-tax fillers of Pakistan. An overall increase can be seen on the Advance Income Tax. These changes include:
- For tax fillers the tax has been increase from 1% tax to 2% tax on immovable properties.
- For non-tax fillers the tax been increased from 2% tax to 5% tax on immovable properties.
The increase in this tax promotes a sales and buying of properties. This has an overall increase in the sales of property, which decreases overall taxes on investment incentives.
Income on Property Tax
Although the Income on Property Tax does not apply to property owners. This tax applies to real estate companies and projects. This tax has been set to 20% tax from previously being 35% tax. This decrease in the tax promotes the development of newer and planned societies, rather than over capacitating the already existing housing societies and sectors. In case of losses met, this tax can be off-set with the overall other taxes that are being paid by the project owners.
Two Other Positive Advances for Real Estate Sector
Apart from the changes that are made by the FBR in the annual budget of 2021 to 2022 Pakistan, there are two more positive advances made for the real estate sector. These two advances are:
Public Spending Development Program (PSDP)
The Public Spending Development Program (PSDP) although isn’t directly connected to the real estate sector, but has high implication on the sector. The PSDP is tax allocated for the development of infrastructure of Pakistan. This includes new roads, bridges, underpasses, interchanges, and connecting roads. The budget has been increased to 40% that is 900 Billion for the development of infrastructure.
This has great implications on real estate as the value of projects depend highly on this. The more roads connected to a society increase the value more for that project. This tax comes in a direct relation to the value of any real estate project.
Low-Cost Housing & Housing Mortgages
The other positive development in real estate according to the new budget is the development of low-cost houses. The government of Pakistan has announced to allocate budget for the development of low-cost housing societies. Another factor is the development of housing mortgage plans. These two promotes the general public to easily own and buy property.
The Impacts of Budget 2021 – 2022 on Real Estate
The overall impact of the new annual budget of 2021 to 2022 on the real estate sector of Pakistan is positive. The new budget has significant impact overall, as the government has aimed to reduce country’s debts by these new taxation schemes. After the pandemic the overall state of Pakistan has faced deficits, but the real estate sector is one such sector that has not been impacted as such. These new taxation laws have promoted the use of already existing idle properties. These new taxation laws have an overall positive impact on the buyers, investors, and real estate businesses. For the next year these laws will show what they implicate for the real estate sector, and the next months are crucial as many changes can come about.
