Budget June 2020- 21: Property Tax Reduction

The budget 2020-21 was introduced on June 12, 2020. It offered property tax relief measures to curb the economic fallout, and create job vacancies; in the real estate sector.

In April, the government proposed property tax relief measures to tackle the challenges, precipitated by the coronavirus outbreak. The incentive relief package was an attempt to increase job vacancies for daily labor. However, Shaban Elahi, the real estate forum president opposed the tax relief package. He said that it would not promote economic stability as the government targeted sellers’ tax exemption. Shaban believes that the government should offer proprietary tax exemptions to buyers in an attempt to boost economic growth. Just like builders, overseas Pakistani shouldn’t be inquired about the source of income. 

Let’s discover what the new real estate budget 2020 brings to the table. 

Capital Gains Tax 

The budget further proposed a tax reduction in the profit generated by selling a property. No tax deduction on property sold after four years of purchase. But, a 5% property tax deduction if sold, within three years of its purchase, A 7.5% property tax will be charged on real estate that is sold after two years of holding duration.A 2.5% tax will be charged if sold within four years of purchase. However, not a single penny will be charged after a four year possession period. This shows that the eligibility criteria to sell a structured estate without any tax, shrank to four years, from eight years. This also proposes a division between structured property and open plots.  Furthermore, a property tax of 20 % is imposed, if the profit is worth Rs 20 million in the first year of the purchase.

Construction Material 

According to the budget, Federal Excise Duty (FED) on cement/kg decreased to Rs 1.5 per kg from Rs 2 per kg. First, the rate reduction was fixed to RS 1.75 but now varies between Rs 1.5 to Rs 1.75. This will result in a price fall of RS 25 per bag, however, media predict a different digit. Additionally, the regulatory duty reduced to 11% and 6% on steel and iron, respectively. 

Stock Market

The Pakistan Stock Exchange is a vast contributor to the performance of the economy. Therefore, to set its recent investments in motion, the government intentionally kept quiet on the proposed suggestions. 

The Pakistan Stock Exchange (PSX) introduced a reduced CGT on the sale of stocks in the market. A fixed CGT rate of 15% applies to shares sold at any time. 

Farukh Khan, the PSX director, seemed disappointed with the new budget. A further reduced CGT would have welcomed new investors in the Pakistan Stock Exchange, opening doors of revenue for the government.

The year 2019 initiated Rs 1.3 billion from Capital Gain Tax, through the stock market. However, income generated through CGT is 0% this year, up till now. The government might be able to overcome this loss, in the coming years.

The director suggested that the government should have proposed a detailed plan for privatizing enterprises that are going in loss. As these corporations swallow up most of the hard-earned money of the public. Moreover, the government should have proposed cuts in its expenditure.

Builders

The new budget states that the government holds no right to ask about developers and builders’ source of income, which they spend on construction. A new taxation system is introduced, for builders, to lower taxes. The builders will have to pay 250 Rs per square feet for the construction of commercial and residential projects, in Islamabad, Lahore, and Karachi. Builders in other cities like Rawalpindi, Multan, Hyderabad, Faisalabad, Sukkar, and Sahiwal will avail a discount by paying Rs 230 per square feet.

Tax Law Ordinance 2020 discussed the above-mentioned levy, in April. It aims to aid FBR registered developers.

Other Relief Measures

Also, Approx 90% of tax reduced on a home purchase, to ease the burden on people with low income.

Naya Pakistan Housing and Development Authority will avail income tax amnesty. Also, the government issued Rs 30- billion funds to the housing scheme to launch affordably priced houses for the middle and lower-middle-class segment. A few liability companies also relieved from taxes, associated with construction. 

The government granted Rs 1.5 billion to the Akhwat Foundation for offering interest-free house building finance to low-income people. 

Organizations can claim 2% of the total rent of real estate. Formerly, this rate was 6%. 

when an agent makes a payment to a registered or unregistered nontaxpayer, he can retain a 5% sales tax of the total value.