What is tax policy?
In simple words, tax policy defines what taxes governments impose, on whom, and in what amounts. Tax policy can be on a micro level as well as the macro level.
What is Cloud Tower-1?
Cloud Tower-1 is one of a kind real estate project that offers one of the best residential apartments in Islamabad with a variety of modern facilities & amenities.
What is the impact of the year 2022-23 taxation policy on the real estate sector of Pakistan?
The budget for 2022-23 is here, and there are some changes in taxation policy for the real estate sector in Pakistan, which means Cloud Tower-1 is also affected. We will try to clarify all things related to the real estate tax policy of Pakistan in as simple words as possible.
According to the new real estate tax policy of Pakistan, the real estate sector is divided into three segments. The reason for dividing the real estate sector into three segments is to promote investments in certain real estate projects while discouraging investments in certain estate projects.
Three Segments
New taxation policy and its impact on all three segments of the real estate sector
Following is the new taxation policy and its impact on above mentioned real estate segments:
Increment in withholding tax and its impact on real estate
Withholding tax is the only tax that will apply to all three segments of the real estate sector that we mentioned earlier. It is the tax that the property buyer pays before the plot is registered in his/her name. According to the new taxation policy for the real estate sector of Pakistan, withholding tax has increased by 2% for filers and 5% for non-filers. If the value of the property is 1 crore, a filer will pay 2 lacs tax, and a non-filer would pay 5 lacs tax.
Maybe many people in the real estate sector would look at this increment of withholding tax negatively, but this isn’t a big enough impact that would cause a downtrend in the real estate sector. This taxation policy may discourage short-trading, but at the end of the day, it would be acceptable to many investors.
Capital gain tax and its impact on real estate
Capital gain is the only tax that comes with different values for all three segments of the real estate sector.
In the construction segment of real estate, the capital gain tax will apply to only that person who sold the house before four years and got exempted after the fourth year.
In the residential apartment segment of real estate, there will be a 15% capital gain tax for the first year, 7.5% tax if the purchaser held the property for more than one year but didn’t exceed two years, and 0% tax if holding period exceeds two years.
In the plots and files segment, the capital gain tax will apply to only that person who sold the plot before six years and got exempted after the sixth year.
Capital gain tax’s impact on the buildup or construction segment has hardly been revised, whereas the apartment segment has been incentivized.
Deem rental income and its impact on real estate
Deem tax only targets unused assets, such as plots and files. As per FBR value, there has been a 1% deem tax imposed by FBR on unused property worth 25 M. This includes plots, unused houses, farms, or any land that exceeds 25 M but doesn’t generate regular income.
Since the plot sector doesn’t produce any rental income, it will get the biggest hit and, therefore, will become a liability. The future of investments in non-rental generating properties will take a big hit.
While the smaller societies for the middle and lower classes may continue to operate without being affected, investors that have invested so much in richer societies, such as Bahria Town, will tremble. This impact might transfer to smaller societies if big shots fall.
The idea is investors stop holding unproductive assets, such as plots, beyond 25 M.
CloudTower-1 © 2023. Designed By Media Elves
