In the annual budget for 2022-2023, the federal government enforced new taxes on the real estate sector. This move was taken to promote the ideals of progressive taxation, with a clear focus on direct taxes. According to FBR Chairman Asim Ahmad, the Federal Board of Revenue submitted a proposal to the federal government for 440 billion in new taxes. Later, this proposal was approved and included in the budget. It aims to stabilize the economy and resurrect the International Monetary Fund (IMF) program, which has been delayed for some time.
Property Tax 2022 Budget
The Federal Board of Revenue has planned to charge Rs440 billion in additional taxes, according to FBR Chairman Asim Ahmad. These new taxes include:
- Rs 316 Billion Income Tax
- Rs 90 Billion Sales Tax and Federal Excise Duty
- Rs 34 Billion Customs Duties
In the next ﬁnancial year, the FBR has decided to grant tax relief to the real estate sector in the amount of 85 billion dollars. The upcoming budget will implement a total of 316 billion in taxes. The Federal Board of Revenue also makes the details of the adopted tax ratio public.
The Income Tax on Underused Property
Through the Finance Bill 2022, the FBR has proposed taxes of Rs153 billion on both domestically and internationally owned immovable property and assets. Luxury farmhouses and other underused properties with a value over Rs. 25 million are subject to the proposed tax on presumed income. On an annual basis, it is expected to bring in Rs30 billion.
On any unutilized or extra property worth more than Rs. 2.5 crore, the FBR has levied a 1 percent Deem Tax.
The FBR would be able to raise Rs40 billion in the upcoming fiscal by increasing the Capital Gains Tax on Immovable Property for Non-Filers from 2 to 5 percent. The rate on the sale and purchase of real estate for tax-filers will increase from one percent to two percent, generating an extra Rs45 billion in revenue.
The Rate of Tax Depending on Holding Period
The rate of tax is also different for the different properties depending on the holding period. These property types are divided into three. These property types are listed down below:
- Open Plots
- Constructed Property
When the holding term is less than one year, the rate of tax on open plots is 15%, the constructed property is 15%, and flats are also 15%.
Open plots are taxed at 12.5 percent, constructed property at 10%, and flats at 7.5 percent when the ownership term exceeds one year but does not exceed two years.
Open plots are taxed at 10%, constructed property at 7.5 percent, and flats are taxed at 0% when the holding duration exceeds two years but does not exceed three years.
When a property is held for more than three years but less than four years, the rate of tax on open plots is 7.5 percent and on the constructed property is 5%.
Capital Gain Tax
According to the new update, the CGT will apply for 6 years if you sell your property, and the maximum tax rate will be 15%. According to this new update, the taxes will be:
- If the property is sold within a year, a 15% tax is imposed.
- If the property is sold within 2 years, a 12.5% tax is imposed.
- If the property is sold within 3 years, a 10% tax is imposed.
- If the property is sold within 4 years, a 7.5% tax is imposed.
- If the property is sold within 5 years, a 5% tax is imposed.
- If the property is sold within 6 years, a 2.5% tax is imposed.
- If the property is sold within 7 years, a 0% tax is imposed.
If you sell a plot before the 6th year, CGT will apply, and there will be no tax in the 7th year. If you sell a property before the fourth year, CGT will apply, and there will be no tax in the fifth year. For apartments, CGT will apply for the first year, and then there will be no tax from the second-year forward.
ICCI President on Additional Taxes
According to Islamabad Chamber of Commerce and Industry (ICCI) President Muhammad Shakeel Munir, additional taxes imposed by the government on the real estate sector in the budget for 2022-23 would have a negative impact on the construction industry’s growth. He also further said that he is afraid that it will also considerably increase unemployment.
He concludes his speech by saying that he believes the additional taxes are excessive. These taxes will have a negative impact on the real estate industry, resulting in a labor shortage. He stated this because he believes the construction industry plays a significant role in the economy and its development. Imposing these taxes on a much higher amount will not improve things.
These statements by Muhammad Shakeel Munir, President of the Islamabad Chamber of Commerce and Industry (ICCI), are significant since he is a knowledgeable individual. This additional tax issue must be re-evaluated in order to achieve full harmony amongst all economic sectors.
Also Read: Property Budget 2020-21
So there you have it: An in-depth analysis of the Property Tax 2022 Budget. Hopefully, you found this information to be extremely helpful in choosing the housing society of your dreams. If you liked what you read, you can find more articles on our website and spread the word!