The Federal Government of Pakistan has announced its budget for the fiscal year 2014-15 and analysts are busy gauging its potential effects on the economy. The government has introduced additional taxes of Rs 231 billion, and the property sector, too, has been led to add its share in those taxes.
Last year, when the government introduced new taxes, especially the luxury tax, on the property sector, very few real estate analysts believed that it would actually affect buying-selling activity in the real estate market. And this is exactly what we saw over the last year where the value and demand for luxury properties in Category A went up instead of going down after the additional taxes were levied.
In this year’s budget, the government has announced the imposition of a 1% tax on immovable property for the compliant taxpayers and 2% for the non-compliant buyers. Tax on purchase of immovable property will be collected in advance and adjusted later. However, property valued at less than Rs 2 million, as well as properties in government housing schemes meant for overseas Pakistanis, will be exempt from this tax.
To bring the property sector into the tax net, the government has been advised to keep a record of property sale and purchase and impose advance adjustable tax on the sale of immovable property. After seeing big investors least concerned about paying additional tax on luxury property, it has perhaps become clearer that they can be focused on more specifically to help the government widen its tax net.
Giving leeway in the budget to the smaller investors is a positive sign and a clear indication from the government that it does not wish to bother those who have fewer resources to invested in the property sector. Tax exemption for overseas Pakistanis looking to buy land or houses in government housing schemes is a great step by the government, as it will encourage these potential investors to channel their capital into housing schemes financed by the government instead of heading towards the upscale localities of the major cities of Pakistan.
The property sector in Pakistan needs serious reforms, not just to help the government come up with smarter ways to target potential taxpayers but also to help make the sector more transparent and easier for people to get involved with.
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Overall a good article. However needs a small correction, the limit is Rs. 3 M and not 20 M for exempt property.
Dear Mr Ahmed,
Thank you for your comment and for pointing out this error. We have made the correction accordingly.
In the Finance Bill 2014, the exemption from the tax discussed above is to a property having value of Rs. 3 Million [thirty lac] and not Rs. 20 Million referred in the above analysis. Any reference from where this figure of Rs.20 Million has been taken?
It has been corrected, thank you.
You made the correction highlighted this morning and removed my comment without thanking me.
Thank you ahmed, your comment is there, please scroll up to check.
Does it mean, CDA related properties will also be exempted from the tax?
Please confirm.
Regards,
Mir
It should, but you must confirm it from CDA sources.
Is it 2 million is 20 million.
it is 2 million, 20 lack. It was a typing error in the article and we have corrected it, thank you.
Hi Samra
Thanks for sharing this nice piece of information. But I have a question regarding new property buying and selling tax policy, Actually I want to know what impact on oversees Pakistanis with the above policy of tax purposed in tax for the people who want to invest in private housing societies /sector like Bahria town etc? One thing is clear please correct me if I am wrong that their is some flexibility for oversees Pakistanis if they want to invest in Govt housing sachems but what about in private sector? Can you please share your thoughts and information you have in this respect thanks.
Muhammad Saqib.
you mentioned government housing scheme for overseas pakistani but where is any such scheme?
There are certain sectors reserved for overseas Pakistanis in government housing schemes. In some projects, the government reserves certain quota for overseas buyers/investors. Since it has been announced that overseas investors will be given certain exemptions from tax in these housing societies, we should expect to see more defined advertisements about where such investors can buy in housing projects announced by the government.
Thaks. Someone should explain the practice too, please.
Practice? Please elaborate.
Well, it’s really nice informative article! This makes me understand the trends of property market in Pakistan with respect of yearly budget. Surely, government must take some steps in favor of real estate Pakistan as real estate is a huge sector that may play a great role in strengthening the economy. Thanks for sharing!
Hi Samra,
I plan to buy a house in Punjab Govt Servants Housing Society in Lahore, and I am an overseas Pakistani. Will I be eligible for any tax exemption in this case? If yes, what is the tax right now for someone living in Pakistan, that I will be exempted from ?
Thanks
Asad
Property tax varies from area to area since the rate is different for Category A, B and C areas and also depends on the rental income that a house may offer. You need to talk to the experts to gauge the amount of tax you can save. Roughly, it is something between 7 to 15 thousand annually that you can save in terms of property tax.
Please head to our forum and post your query there, some expert form the related field can help you know closer figure of the tax amount that you can save by investing in government housing schemes/sectors meant for overseas Pakistanis.