Just like how the government crunches non-filers with certain taxes in the Budget 2016-17, things have been made difficult for real estate builders as well. The Federal Board of Revenue (FBR) has imposed fixed taxes on builders, which will certainly have some serious effects on the construction cost of houses and other real estate developments.
The FBR has categorised real estate builders into three categories and has imposed fixed taxes on them accordingly. Real estate builders in Karachi, Islamabad and Lahore have been placed into Category A, while real estate builders operating in cities such as Hyderabad, Multan, Gujranwala, Faisalabad, Rawalpindi, Sakkhar, Sahiwal, Peshawar, Abbotabad and Mardan have been placed into Category B. All the remaining cities have been included in Category C.
According to a source, real estate builders working in Category A cities will pay PKR 210 per square foot on their commercial properties and PKR 20 per square foot on residential structures measuring up to 750 square feet. The tax rate varies as per size of residential units and is different in cities in B and C categories. I personally believe that the consequences of these taxes haven’t been thought over properly or perhaps it doesn’t really matter how builders may react to this development.
If someone believes that these taxes would be paid solely from the income of a builder without being reflected in the prices of their real estate developments, that’s absolutely wrong. The industry should prepare to see a rise in construction cost. And just because an average man is too occupied to get versed with varying tax percentages, no attention will probably be paid to the increase in prices of properties.
Once again, the end user will pay tax in the form of increased property values.
Furthermore, the FBR has recommended to impose similar taxes on real estate developers. In other words, we should expect to see a gradual and consistent rise in individuals not owning their home in Pakistan. But never mind, as the imposition of said taxes will help our government earn PKR 25 billion from builders and PKR 14 billion from real estate developers.
What do you think about these taxes? Please share you view in the comments section below.
How will it effect investor from here and overseas?
We will have to wait and see.
well good observation given by writer. In my view, if the govt impose the taxes to increase the revenue, it will not affect the construction business like other business as well. the writer has already mentioned that end user will pay the price so the business will go with some ups and downs. However, the industry will observe the increase in prices and will give an impact of boast for future investor. it can click the mind of some investors to buy and invest in real state sector even on high prices due to increase in price not just because of demand but rather for some newly made taxes. the industry must get some relief by lowering the price of raw materials and by exempting the sale taxes on some of the machinery items. However, the consequences can be observed after few months.
I wish zameen.com team, a very blessed and joyful month of Ramadan.
The tax on developers will be a direct burden on potential buyers, rather is an unwarranted onslaught on them. Developers shall lose nothing. It would definitely trigger an unrest among the general public. To me, the declension to impose such tax seems half cooked and a mad effort of an unwise brain to collect the revenues.
Same to you Khurshid Qazi sahb. I am very happy to read your comment here. May Allah keep you and your loved ones safe and healthy, ameen.
Its not a good news for the real estate peoples of this country.
Bahria Town Expert
Dear Ms Samra
You people have not referred capital gain tax of 10% in case properties are held by the seller for less than 5 years.
This article discusses only one aspect of the tax. Insha’Allah i will discuss different taxes in separate posts.
Capital gain tax is already in field and is an old imposition.
I can certainly see how it would bring in much needed revenue for the govt. However, according to my calculations, a 750ft residential plot (pretty small, I know) would only Incur a tax penalty of 20 PKR per sq foot. 20PKR * 750′ equals to 15,000 PKR. That doesn’t seem significant to me. In fact, it’s quite negligible.
A commercial plot of the same size would incur a tax of 157,500 PKR. That could get substantial pretty fast.
If it’s only a one time fee, I expect the impact to buyers to be minimal, or none at all.
If it’s an annual fee for the owner of the property, then it could certainly have an impact.
Unless I’m missing something….
Very good decision by Govt. builders were looting money from buyers and paying no taxes.
Still no one have capacity to buy a home of 5 marla in 90-150 lacs, what a stupid is it. If a person save 100,000 , it will tak 90 months e.g 8 years to reach a 5 marla house.
But remember that to save 100000 you need to earn 200000 per month, in this country where average pay of labourer is 15k, and a person with highlight skilled earning 50k on average
For God sake , don’t make people fool, in 2 years this property boom will burst, because on ground no buyers , just few mafia playing it
It is a sick idea of Govt to impose tax on non productive assets of public. Plots / realestate are productive when sale / purchase is there or some trading is done. In that case, already 5-10% tax on capital gain is there as per year of investment,. Secondly, CVT and other govt taxes already there which are collected at the time of transfer / registary etc.
Well on one end we cry that Govt is not doing enough to bring more people into Tax net and on other hand we cry whenever a community (traders, real estate, developers, etc) is added to the Tax net. We should have some sense and face our obligations as well. Every kind of income irrespective of source should be taxed as it is in entire world. Of course the slab system should be there to protect the low income group. We see a lot of fat cats who made billions in property but paid no taxes. Time all sectors are taxed equally and not just the salaried class.
You have mentioned about other countries for tax collection. But you did not mention the spending of tax money by those countries you are trying to point out . Problem in Pakistan is not tax collection. Problem is where the tax money goes? In the protocols of politicians, their kids protocol, or in in the pockets of their relatives and in return they keep realising you that you are just bloody awam..
I am an Overseas Pakistani, working in KSA over 30 years and holding a piece of land in Pakistan. My question is that if the Government of Pakistan is imposing taxes on the Plots, is that included Overseas Pakistanis, whereas I heard that KSA Government is also intended to implement some taxes on the transaction will be made by the foreigners. In that case Overseas Pakistanis will pay the taxes twice on their income.
Well we can blame the Govt for wrong spending but that does absolve us of paying our genuine taxes; If we evade tax we are no better than people we blame for corruption. They do corruption where they can (misuse of funds) and we do corruption (Tax evasion) where we can.
We need to pay taxes and use our vote to pressurize rulers to do better. We give away our vote for baradari or family pressure to wrong people then blame rulers for their corruption. Must remember to vote for honest candidates irrespective of party that way parties shall be forced to select better candidates. And also do our civic duty and pay taxes.
I need some information about capital gain tax on sale of property in sargodha city area punjab, please provide guidelines on this issue thanks
I need to know if i get constructed a RESIDENTIAL house in Karachi from a local builder, that too will have to pay imposed tax? I dont think so. If they will not pay this tax, then value of these kind of properties will not rise. Right?……………. I guess only registered and big builders are subject to this tax.
As salam o alaikum ,
Lets see whats gonna be happen with this where is going to exist market