Government faces pressure to reverse property taxes


ISLAMABAD:


The government has come under increasing pressure from influential circles to cancel the tax measures in the real estate sector, which it introduced nine months ago to increase the sector’s paltry contribution, and to announce this decision as part of a economic relief plan to fight the global coronavirus pandemic. .

Government is discussing proposal not to levy up to 20% Capital Gains Tax (CGT) if a parcel is sold after holding it for 1,095 days instead of the current 2,921 day period , according to Federal Board of Revenue (FBR) sources.

Currently, the tax is exempt if the asset is held for more than eight years for the purpose of discouraging speculative practices. Lobbyists want the government to reduce the period to just three years. If the property is sold before the eight-year period, it is subject to up to 20% of the capital gain.

Major players in the real estate industry, including some cabinet members, have come to FBR headquarters to seek relief. They also pressured the RBF not to ask for the source of the investment, the sources said. A few meetings took place at the PM Office and the Ministry of Finance to take stock of the situation.

Interim RBF President Nausheen Javed did not respond to whether the RBF decided to roll back the changes or if it would keep up the pressure and continue with the existing regime.

As part of the International Monetary Fund’s (IMF) tax package, the Pakistani government Tehreek-e-Insaf (PTI) had increased the holding period from three to eight years for open plots in order to claim an exemption of 20% of the CGT.

For the built property, the government had increased the holding period from three years to four years to claim the tax exemption.

“We are constantly working with the Pakistani authorities to assess developments and identify courses of action,” said IMF resident representative Teresa Dabán Sanchez.

The remarks were made after she was asked to comment on whether changes to the real estate sector‘s tax regime had been discussed with the IMF and whether the fund would allow investors to invest in real estate without disclosing the source of income.

The extended detention period was part of tax measures worth Rs 735 billion the government took as part of the deal with the IMF in July last year. The additional tax collection for the real estate sector has been estimated by the IMF at Rs 44 billion for the current fiscal year.

The purpose of these changes was to increase the collection of taxes, to discourage speculative investment and to stop the spike in property prices. The real estate industry does not create a lot of jobs because speculative investors largely negotiate files and do not build homes.

Now the RBF is under pressure to restore the status of June 30, 2019 as part of an economic relief plan that Prime Minister Imran Khan will announce on Tuesday. However, the lobbying to reverse the legal changes had taken place long before the coronavirus outbreak hit the world.

After changes in the period of holding property, RBF tax collection on the real estate sector increased but the number of transactions decreased.

Supporters of the old lax tax regime are pushing transaction reduction as a tool to reverse the measures.

Overall, the Pakistani economy is on a downward trajectory due to the stabilization policies introduced as part of the agreement with the IMF and the crackdown on the informal economy to meet the demands of the Financial Action Task Force. (FATF).

There has not been a permanent chairman of the RBF for the past two and a half months as the prime minister strives to please all quarters. But that keeps the most critical post vacant.

There have also been many attempts in the past to document the real estate industry and improve tax collection thereon. Former Prime Minister Shahid Khaqan Abbasi had also tried to make changes, which the RBF did not implement, although the law binds him. The RBF delayed a notification for the establishment of the General Directorate of Real Estate which could have given the authorities the first right to acquire undervalued assets to evade tax.

The former Prime Minister had taken the plunge and introduced the concept of preventive action through the 2018 finance law which entered into force on July 1. But the RBF did not make the management operational.

Meeting of the relief package

Prime Minister’s Finance Advisor Dr Abdul Hafeez Shaikh chaired a meeting on Monday to solicit input from the business community for the economic relief plan.

The business community demanded that it be easier to take care of their employees over the next two to three months and that they be provided with assistance to continue their activities with an improvement in the liquidity situation, according to a statement released by the Ministry of Finance.

The adviser said that in this difficult situation, the main objective of the government was to contain the virus, to provide health facilities, essential food items at affordable prices, to help keep enough money on hand to the common man and to provide aid and assistance to the business community to run their businesses without a permanent setback in the economy.

“Trust that the government is here to support you,” Shaikh said at the meeting.

Posted in The Express Tribune, March 24e, 2020.

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