On 11th June 2020, the Government of Pakistan announced the Federal Budget 2020-21 reporting the government’s estimated revenue and expenses for the year. In this blog, we will provide you with in-depth insights about the Finance Bill 2020-21 keeping the real estate perspective at bay, along with a brief on the measures taken by the government to improve the fiscal discipline.
We will begin with understanding the meaning of the financial budget and how it is sourced. Afterwards, we will take a look at the effects of the federal budget on Pakistan’s real estate sector. In the end, we will discuss the measures for improvement in fiscal discipline and the latest updates on the financial budget.
What is the Federal Budget of Pakistan?
The Federal Budget – also known as Finance Bill – is the central government’s estimated summary of revenue and expenses for the next financial year. It is more or less like a home-budget except that it analyses public funds for the next year. Additionally, the fiscal year in Pakistan begins from 1st July of each year and concludes on 30th June of the following year.
Generally, federal income is generated via tax revenues that are derived from public incomes, business profits, custom duties, imports, tariffs, and more. Meanwhile, federal expenditures include defence and public safety, healthcare system, education system, social welfare, transportation, infrastructure, developments, salaries, and the list goes on. All in all, the source of revenue is limited, and the expenditures are limitless.
Now that you have a better understanding of the basics, let’s take a look at the highlights of Pakistan’s budget 2020-21 and its impact on the real estate sector of the country.
Highlights of Federal Budget 2020-21 and Its Impacts on Real Estate Sector of Pakistan
The Finance Bill 2020-21 is also known as a tax-free budget since no new taxes have been imposed on immovable properties, businesses, and income in Pakistan. Being Pakistan’s most trusted portal for everything real estate, we have compiled all the information you need to have regarding the impacts of the Federal Budget 2020-21 on Pakistan’s property market. So, let’s continue:
- The central government has announced a special package under the umbrella of ‘amnesty scheme’ for the country’s construction industry.
- The Naya Pakistan Housing Programme – government’s scheme to build 10 million houses for the lower to the middle-income group of people – has been allotted PKR 30 billion for further developments. Additionally, the housing scheme has also received tax exemptions under the Finance Bill 2020-21.
- An exciting package to assist the businesses that have been affected by COVID-19.
- No new taxes are imposed on immovable properties.
Relief in Sales of Property & Income
The Federal Budget of Pakistan has provided relief to capital gains, which are received on the sale of and the subsequent income from immovable properties. The holding period – which was 8 years previously – has been reduced by half. Meanwhile, the taxable rate of capital gain has also been reduced.
Find out more about property taxation in Pakistan via our recently published post where we have discussed everything in detail.
Incentivising Development REIT Scheme
The federal government has proposed to exempt tax from the profit earned on the sale of immovable property. According to the official brief, this initiative is going to encourage and develop residential developments via the Real Estate Investment Trust (REIT) Scheme. It will apply to the development and sale of residential units till 30th June 2020. However, it is proposed to be extended until 30th June 2021.
Measures to Improve Fiscal Discipline
According to an official brief on Financial Bill 2020-21, the Government of Pakistan has taken the below-mentioned measures to bring improvements in the fiscal discipline:
- Execution of Public Finance Management Reforms and Cash Management System.
- The government has capped the current stock of public guarantees.
- Development in merged districts of Khyber Pakhtunkhwa through a historic package of PKR 152 billion.
- Induction of different welfare schemes under the flagship of “Ehsaas Programme” to expand smooth cash transfers to the underprivileged.
- Build and sustain a primary surplus.
- No additional aids.
- No money will be borrowed from the State Bank of Pakistan for budget financing.
- The business community of Pakistan has received refunds of PKR 254 billion – almost 125% more than PKR 113 billion issued last year. Further, payment of DLTL claims of around PKR 35 billion has been provided already.
- Restructuring the firmness in the Federal Government to reduce financial burden.
- Expedite Public Sector Development Programme spending.
Note: The information in this segment has been extracted from the document of Budget Speech 2020-21, which is available on the official website of the Federal Government. You can get the full brief on the budget speech here.
Latest Updates on Federal Budget 2020-21
Right after the Federal Budget 2020-21 was announced, the Federal Board of Revenue (FBR) granted a legal cover to the construction package and revising property valuation rates in major cities of the country.
Commenting on the progress, one of the FBR’s official said, “the Federal Board of Revenue has formed a separate board whose primary goal is to evaluate the tax and valuation rates of the property sector in different cities at the level of field formations but it is not yet known whether these rates will be revised upward or kept at existing levels in the next financial year”.
So, this is all you need to know about the Federal Budget 2020-21. We have mentioned all the essential information that you need to judge the impact of the financial bill on the real estate sector. We will keep updating this post, so bookmark this page and keep visiting timely.
On a side note, you can find out more about Budget 2020, Pakistan by navigating to the official website of the Ministry of Finance, Pakistan. Meanwhile, the summary of Budget 2020 by FBR can also be viewed here.
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Disclaimer: The information in this blog has been taken from the official government website. Zameen.com doesn’t take any responsibility if the information on the official website changes or alters. However, we will keep updating our blog as soon as the information on the official sources updates.