Mansoor Sadiq

Pakistan’s real estate market has been going through a struggling phase due to imposition of additional taxes and dwindling purchasing power of investors. “An exponential rise in property values and consequent decline in the public’s purchasing power have discouraged investment in the real estate sector,” said President of Islamabad Estate Agents Association (IEAA) Sardar Tahir Mahmood while talking to WealthPK. He said that following the understanding with the International Monetary Fund (IMF), the government has withdrawn commitments of incentives for the real estate sector. He said facilities for overseas Pakistanis to send remittances and get exemption in real estate sector investment have also been withdrawn. Tahir said the rates of withholding tax under Sections 236C (advance tax on sale or transfer of immovable property) and 236K (advance tax on purchase or transfer of immovable property) have been raised, and the ratio of withholding tax for filers of income tax returns has been raised from 2% to 3% under Section 236C.

The rate of withholding tax for non-filers has been raised significantly from 7% to 10.5% under Section 236K. Under the new rates under Section 236K, advance tax at the rate of 3% would be collected from filers and 10.5% from non-filers. The IEAA president pointed out that increased taxes on sale and purchase of property are not simply limited to real estate agents, but it will also impact the general public with enhanced cost of taxation on sale and transfer of properties. “Additional taxes tantamount to discouragement of investment in this business,” Tahir said, adding that the estate community, builders and developers, and clients will be affected by these tax measures.

He called upon the government to withdraw additional taxes to save the real estate sector from further downslide. Through the Finance Act 2023, the government introduced new taxation measures and implemented advanced income tax on builders, developers and sales of DAP fertilisers to raise an additional Rs215 billion in view of taxes to fulfil the prerequisites of IMF for the loan program. For builders and developers, income derived from constructing and selling residential, commercial, or other buildings, as well as developing and selling plots, will now be subject to adjustable advance tax on a project-specific basis. This tax must be paid in four equal instalments throughout the tax year, based on the new tax rates implemented from July 01, 2023.

Credit: INP-WealthPk