KARACHI: A government plan to tax the capital gains of Rs5 million and above on sale of an immovable property and bring property taxation under normal regime in the Federal Budget 2021-22 appears highly unlikely to materialise after realtors termed the move “impractical” and conveyed their reservations to authorities at the Prime Minister House who invited them for a meeting next week to fix the issue “for once and all”.
The government has introduced multiple measures in the budget to streamline its tax regime and announced several proposals to achieve the revenue target that led to new decisions about property taxation. The years-old practice of charging capital gains tax (CGT) on property business was further defined and income generated through the deals is also proposed to be brought under the normal tax regime.
In the finance bill 2021-22, the CGT on immovable property was proposed to be changed to flat five per cent up to the capital gain amounting Rs5m as compared to previous tax rate range of 2.5pc to 10pc.
However, the move, which was apparently aimed at bringing reforms in the tax system, has further complicated the system for realtors, who are not convinced with the idea.
“It’s absolutely impractical,” the chairman of the Federation of Realtors Pakistan, Musarrat Ejaz Khan, told Dawn. “Secondly, we are still confused and can’t understand the idea. On the one hand the property taxation is being brought under the normal tax regime and on the other capital gain tax is also there. It brings the real estate sector under multiple taxes slabs.”
“We have conveyed our concerns to the PM House from where we have received a positive response. We are expected to meet the authorities at the PM House next week. I firmly believe that the budget announcements are just proposals and things would be changed if they are not found right before they are approved,” said Mr Khan, who is also the chairman of the Naya Pakistan Housing & Development Authority’s (NAPHDA) think tank.
Considering the focus of the Pakistan Tehreek-i-Insaf government on a particular segment of the economy — the real estate construction industry — many find the taxation proposal for the sector in the Federal Budget 2021-22 quite surprising.
In his budget speech in the National Assembly Finance Minister Shaukat Tarin had said: “Under present legal dispensation current year business loss is adjustable against income under all heads except property and salary income. This is causing hardship to many businesses. As property income has been brought under normal tax regime therefore, current year business loss has also been allowed to be adjusted against property income.”
He also briefly shared his proposals to “streamline the income tax” and announced reduction in the block taxation in an attempt “to make complex tax system a simpler one”.
“To make complex tax system a simpler one, the block taxation for property income is proposed to be done away with. The scope of separate block taxation of capital gain on the sale of immoveable property and on interest income is proposed to be curtailed except smaller amounts,” he had said.
However, things aren’t working as per his desired way.
“We had met FBR [Federal Board of Revenue] officials and other senior government functionaries of the finance ministry at the PM House before the budget to discuss a few suggestions,” said Ejaz Khan of the Federation of Realtors Pakistan. “I don’t know how this came out after our meetings and suggestions.”
He was, however, optimistic that the issue would soon be resolved as both the sides had agreed in their pre-budget meetings to sort out the differences on any budget proposal. “So, I think we would be hearing something positive within a week or so,” he said.
Published in Dawn, June 13th, 2021