by Mohsin Abbas
Budget Proposals: Changes Proposed in Taxation of Real Estate in Year 2024-2025
The Pakistani government has proposed some significant changes to real estate taxation in the budget for the year 2024-2025. These changes are aimed at increasing tax revenue from the real estate sector and discouraging speculation.
- Capital Gain Tax on Real Estate
Currently, capital gains tax on immovable property is applied based on the holding period of the property and whether the seller is a filer or non-filer. There is no capital gains tax if the property is held for more than six years.
The new proposal eliminates the tax-free status for properties held for more than six years. Instead, a capital gain tax of 15% will apply to filers and up to 45% on non-filers, regardless of the holding period.
This new tax rate will only apply to properties acquired on or after July 1, 2024. Properties acquired before July 1, 2024 will still be taxed according to the old system based on holding period. - Progressive Withholding Tax on Transfer of Immovable Property
Currently, a withholding tax of 3% is applied to property purchases for filers and 6% for non-filers.
The new proposal introduces a tiered tax system for property purchases. There will be three tax rates for filers, late filers, and non-filers. The tax rate will also depend on the value of the property.
The tax rate for filers will range from 3% to 4%, while the tax rate for non-filers will range from 12% to 20%. Late filers will be subject to a tax rate in between those of filers and non-filers.
There will also be tiered tax rates for the sale of immovable property, though the rates will be lower than those for purchase. - FED on Immovable Property
A new Federal Excise Duty (FED) of 5% is proposed on new plots, residential and commercial property.
The stated purpose of this FED is to stabilize the real estate sector and discourage speculation.
Impact of the Proposed Changes
These proposed changes are likely to have a significant impact on the real estate sector in Pakistan. The increased capital gains tax will discourage people from holding onto property for short-term gains. The new tiered withholding tax system will make it more expensive to purchase property, especially for non-filers and late filers. The new FED on immovable property will also add to the cost of purchasing property.
Overall, these changes are likely to lead to a decrease in speculation in the real estate sector. However, they may also lead to an increase in the overall cost of property ownership. It remains to be seen how these changes will affect the long-term health of the real estate sector in Pakistan.
