Daily InsightsLand Use and Property Rights

Impact of New Tax imposed on Real Estate Sector

By 10/03/2023 0 Comments

The government was advised to tax the real estate sector and retailers, two industries that have benefited from the outlay of industrialists and the salaried class. The proposal was put forward during the first summit of a committee formed months earlier by the Prime Minister to find ways to raise revenue. However, representatives of the distinguished committee from the private sector believed the government should not impose additional taxes on already heavily taxed sectors. Tax laws gave the government special authority to compel industries to pay their fair share of taxes, but it never used those abilities. The coalition government inflicted Rs170 billion in new taxes on people but left the real estate and trading sectors, which are already heavily taxed. On the contrary, members of the private committee urged the government to tax real estate and confirm that the sector only transacted through banking channels.

Real estate is one of Pakistan’s largest sectors in terms of net worth and contributes significantly to the government’s revenue generation. The property market in the country’s major urban centres has been under pressure due to genuine demand from a large influx of people from rural areas and consistently rising remittance inflows over the last decade. This demand was exacerbated further by property purchases made to conceal wealth and avoid taxes.  Such massive capital gains, combined with a consistent rent increase and a low tax liability, made the real estate sector the most sought-after avenue for high-net-worth individuals/firms. Imposing taxes on the real estate sector and retailers will significantly impact the nation’s economy and result in notable investment in the real estate market, benefitting the government’s ability to raise revenue. Moreover, taxation will also drive low wealth speculation, money circulation, and increased business activity. 

The FBR has been finding it hard to broaden its tax base, focusing mainly on those already paying taxes. As a result, the salaried class has suffered due to special consideration given to retailers and the real estate sector. All of its attempts at getting more people into the tax net have yet to bear fruit. Moreover, the general public fears filing income taxes. They view it as a trap. Therefore, the government must implement a thorough public education programme on the requirements for filing income tax returns to eventually increase the number of filers.  To compare revenue collection and take appropriate action, the government should conduct a statistical analysis from the time of tax enhancement to the present. Also, tax policies should be implemented in all sectors to ensure economic viability during the current financial crisis period. 

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