Unfortunately, Pakistan’s real estate sector saw a big decline in 2022 when the government changed. Its effects have had long-term consequences.
In simple words, the real estate sector has struggled to regain its former position due to increased taxes and duties imposed by the government on the property and construction industry.
Over the past two years, the property sector in Pakistan has faced numerous challenges, including a decline in demand and prices. Property prices skyrocketed, while the purchasing power of the general public decreased, resulting in market fluctuations. However, the recently announced budget for the fiscal year 2023-2024 brings a ray of hope for real estate.
In this article, we will discuss the impact of the latest budget on Pakistan’s real estate sector.
No Tax Implementations on Real Estate Businesses
Unlike previous budgets, the Budget 2023-2024 does not introduce new taxes for existing and new real estate businesses. The finance minister confirmed that no new taxes would be imposed on real estate businesses. This is positive news for a sector that has been grappling with challenges for quite some time.
The government acknowledges the need to generate tax revenue from various sectors, including real estate, to promote economic growth. However, it remains to be seen if the government can devise a strategy that does not involve implementing new taxes on real estate businesses. Additionally, a 10% tax relief has been implemented for the real estate sector for three years.
FBR Tax Exemption for Overseas Pakistanis
The budget for the fiscal year 2023-2024 also brings good news for overseas Pakistanis. The Federal Board of Revenue (FBR) has announced tax exemptions for overseas Pakistanis to encourage foreign investments, particularly in the real estate sector.
The government has decided to remove the 2% tax imposed on property purchases made through remittances by overseas Pakistanis.
The government has also proposed the introduction of “Diamond Cards” for large-scale investors contributing over $50,000 in the property sector. Furthermore, “Diamond Card” holders will enjoy additional benefits.
Extension of Construction Amnesty till 2024
The ongoing construction amnesty scheme will be extended until 2024 for constructors and developers. Recognizing the significant contribution of the construction and development sector to the country’s economic growth, the government aims to incentivize developers engaged in constructing new homes, buildings, apartments, and commercial areas.
Relief for the Construction Sector
The construction industry will receive a 10% relief on business income from the government for the next three years. Similarly, individuals constructing homes or commercial units will also benefit from a 10% relief for three years. The government has announced a 1.25% tax collection at a 5% turnover for land developers, and an advanced tax of 7.5% will be implemented after the initial approval of the layout plan.
Tax Relief for Developers and Building Material Suppliers
The government has taken steps to support developers and building material suppliers. The tax percentage for the import and production of building materials has been reduced, and the source of income will not be questioned for the construction of personal residences. The same applies to developers constructing plazas, low-cost housing, and similar projects. Moreover, developers will not be taxed on real estate income that is less than or equal to 50 Lacs.
Establishment of Tax-Free Zones:
Lastly, the government has announced the establishment of tax-free zones in different cities across Pakistan. Gwadar has been declared the first tax-free industrial and economic zone in Pakistan. In the future, more areas will be included in this category to benefit the economy and the general public. This step will also prove advantageous for new and emerging businesses and industries.
Conclusion
The budget for the fiscal year 2023-2024 in Pakistan brings hope for the real estate sector. The government has introduced incentives, such as tax exemptions and reduced duties on construction materials, to encourage investment in the construction sector and boost the real estate market.
Furthermore, the government emphasizes the need to generate equitable tax revenues from the real estate sector and other industries to foster economic growth in Pakistan. The tax exemptions offered by the Federal Board of Revenue (FBR) for overseas Pakistanis are expected to attract investment in the country’s real estate sector.
However, the effectiveness of these measures and their impact on the sector will become evident over time. As the dynamics of real estate investments in Pakistan change, investors must adapt to these changes to make the most out of the opportunities available in the real estate sector in 2023.
