From being a comprehensive yet bold to discriminatory and discouraging, a lot has been said about the tax-reform package announced by the Prime Minister. Without getting into the political or moral debate, let’s look at the impact of Tax Amnesty Scheme 2018 Package on the real estate sector.
The reforms pertinent to real estate and property market include the following: Non-filers will not be able to purchase property of value greater than Rs4 million, FBR rates stand abolished from July 1, 2018, while provinces have been requested to abolish DC rates as well, one percent advance income tax on all property transactions, which is adjustable, maximum provincial tax of one percent, and government with the right to buy property by paying 100 percent above the declared value.
Under these new conditions, the general market consensus is that the government is holding out an olive branch; and granted that these reforms are implemented in full spirit, they are bound to bring both long term and short term benefits to not only the real estate sector, but also in legalising the economy as a whole.
Abolishing the FBR and DC rates, should mean a reduction in the confusion regarding the taxes paid on various rates. As per the new reform measures, the old complex system will be replaced by a much simple one where one percent adjustable advance tax and one percent provincial tax - which used to be the tax on DC rates that included the Capital Value Tax (CVT) and stamp duty – will be applicable on the actual value of the property. Talking to BR Research, Captain Shahnawaz Yaqub Bhatti ®, CEO Imlaak.com - an online property portal, highlighted that all in all, taxes on real estate will actually decrease as the real estate sector will not remain a safe haven for undeclared assets once people start declaring their income as a result of the tax amnesty package. This is also illustrated in the table.
The tax benefit illustrated however, is mostly for smaller investors and smaller plots e.g. worth Rs1-2 crore; CEO Imlaak.com says that the larger and commercial transactions will see their taxes increase, which is fair and realistic, and fulfils the aim of the government to bring larger players into the tax net.
He is also of the view that since this is a one-time scheme only; it is the only time to declare the black money parked in the real estate sector. Those who do not avail this three-month window will be stuck as the CNIC in future will be the NTN as per the tax package.
Also, the scheme is being appreciated for attempting to curb under pricing as the government will now have the right to buy the property at 100 percent above the value of the property within 6 months of registration, taking away the huge gains that were made before.
The amnesty scheme is also being evaluated for property prices. While some believe that very few people would avail this opportunity by staying away and hence would bring down prices, others feel that there might be some serious activity in the three months to the close of the window as more people would want to transact, especially the non-filers before they are slammed with the Rs40 million limit.
However, there are always lacunas and loopholes in policies. As also highlighted in BR Research’s article, “Amnesty: good scheme, bad timing”, published on April 9, 2018, real estate is a provincial domain and federal government claiming the right to purchase a property could well be challenged in the court of law. Also, a lot depends on strong political will; with little time left for the current government, the efficacy of the tax amnesty program might not be availed to its fullest - or even the least.
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