This article was originally submitted by Samra Muhammad Hussain and Sidrah Shafiq
In Pakistan’s economy, real estate is the most growing sector. The construction sector grew by 9% and it contributed 2% in Pakistan’s GDP. The property tax’s values have been revised by the FBR in 20 cities which include the provisional and federal capital as well as Gwadar.
Furthermore, for that, FBR issued a separate notification on 23 July 2019 which will be into effect from 24 July 2019. The valuation rate for property has been revised for the second time in five months; the revision of property valuation excels the market rates in some areas of Karachi. Consequently, the increased FBR rates arrived at 80% of the market value.
In Karachi, there are 11 categories.
The A-1 category includes Clifton, Bath Island and Dhoraji society. The types of properties are residential, commercial and industrial and are open for property to be built; flats/apartments. For example, there’s a residential open plot of the A-1 category, valued at 72000 per square feet; previously the rate was 42,000 per square feet.
If there is a property of five-yard squares, the value of the property would now be 36,0000 rather than 21,0000 which was the old value of the property. Moreover, FBR changed the conditions; people were previously exempted from paying capital gain if withholding for three years. But now only those are exempted who hold the property for more than eight years. If anyone gets the property as a gift from their parents or siblings, that person needs to pay the tax amount; reduced to 1% tax on property valuation rate of 20%.
People purchasing the property on installments will not be required to pay tax at the time of buying; they are only required to pay at the time of transfer on their name.
The people who sell the open plots after ten years are exempted from paying capital gain tax.
However, on the property of 5,000,000, there will be an imposition of 5% tax; if the purchaser has sold it within four years of purchase. At present, on a flat or house, there will be no imposition of tax if they have sold it after four years of purchase.
However, for properties that are sold within ten years of purchase, there will be an imposition of a 15% tax rate after 30th June. The revised edition of the rate on buying and selling of property will affect the tax, so the payment of tax to the FBR will increase as well; increasing the value of properties will become the biggest problem for property sellers and buyers.
Consequently, the common man is not buying any property; even one canal plots because of the higher prices.
FBR’s high taxes are now affecting property transfers as cut in the transactions. Although the higher prices are not the issue, the main issue is banning the no filers who have above Rs. 5 million properties.
The middle class now lose their chances of having their property. On one side, the government promises to provide them with five million houses but on the other side, private sectors are not building any houses. Thus, the higher value of the property becomes the main issue because the market of buyers and sellers is in decline and it is badly affecting Pakistan’s economy and development.
After agriculture, real estate has the most employment but after the FBR taxation; most of the people are unemployed. For these kinds of issues, the sector is starting a campaign with the name PAT the Patwari. As a result, PAT will be explaining these real estate issues and provide help for solving people’s problems.
There can be an increase in revenue in two ways.
Buyers should prove their sufficient money and show their transactions or records; if they don’t show any record then they are not to buy any property. Furthermore, property sellers are also paying their taxes; if they sell their property within three years and collect more white money, they should be paying more taxes. In the federal budget 19-20, PTI narrated that the estate agency is involved in money laundering and is used for generating money without paying any tax. The rate of withholding tax on the purchase of immovable property is being reduced from 2pc to 1pc.
Moreover, when properties will be held for more than five years, withholding tax will be collected. If the property is more than 5million and the seller and buyer are non-filers then there will be a restriction placed on the purchase of an immovable property.
Therefore, assets must be purchased through banking channels. For any person who wants to purchase any immovable property of a market value greater than 5million or 1million or in the case of any other assets; it is necessary for them to do all their purchasing transactions through banks.