Real Estate Taxes to Hinder Growth of Construction Sector

Real Estate Taxes to hinder growth of construction sector

The construction industry plays a significant role in the country’s economic development, as better growth of this industry promotes businesses of over 50 allied industries. However, the budget 2022-2023 has proposed taxes on the real estate sector that will negatively impact the growth of the construction industry.

The newly proposed real estate taxes are

An amount of Rs440 billion of new taxes imposed on the real estate sector

Capital Gain Tax (CGT) increased to 15 per cent.

FBR tax increased advance tax to 2 per cent for filers and to 5 per cent for non-filers

Individuals with multiple properties (value over Rs250 million) will pay 1% tax on their rental income.

The government has increased capital gains tax (CGT) up to 15 per cent on the disposal of immovable properties within one year after the purchase. Earlier, the advance tax on the sale/ purchase of the property was 1 per cent for filers and 2 per cent for non-filers which was increased to 2 per cent and 5 per cent for filers and non-filers, respectively. The owners of more than one immovable property of above Rs. 25 million value in Pakistan will pay tax at the rate of 1% of the fair market value. Furthermore, the government has also proposed a 2% tax on all those individuals, including companies and the Association of Persons (AOPs), with an annual income of Rs300 million or more.

Following the proposed tax measures on the real estate sector, experts estimated that steps taken in the budget 2022-23 would prove detrimental to the construction sector as it would not remain attractive for people to invest in the industry. The higher taxation will discourage investments and create unemployment, reducing 50 per cent of activity in the sector. To save the business community from the burden of unnecessary taxes, the government should reconsider the proposed tax structure.

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IMARAT Institute of Policy Studies

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