The recent legislation for taxing the real estate industry has turnout to be a challenge for not only the real estate industry, but also for the Federal Board of Revenue (FBR) itself.
In a bit to expand tax base and document the real estate industry, the FBR introduced the following
I. A new regime of tax for developers and contractors. Under this scheme the said tax payers will now enjoy
(a) Low tax rate as compare to regular tax brackets, and
(b) Will fall under fix tax regime which basically mean limited audit.
II. Revaluation of immovable property prices.
In return, FBR expected to reap additional tax revenues from real estate sector. Whereas it is observed that the scheme turnout to be a nightmare for, the booming real estate industry; major construction initiatives across the nation coming to a halt. The “trading” of the real estate followed the same pattern and the prices of valuable property took a freefall trip! Arguably, this may be linked to uncalled panic that was created owing to lack of proper communication and clarity from the policy makers.
Consequent to the above panic, collection of FBR from CVT and advance tax also witnessed a drastic downside. The first quarter of financial year 2017 has to be one of the driest sessions for FBR in recent history, in terms of CVT and advance tax collection from immoveable properties. In addition, the above new scheme also awaits to make a proper debut through anticipated tax collection. Can there be a “win win” situation for both the stakeholder? At Premium Advisory and Tax Services (Pvt) Ltd (PATS) we are fully convinced that “yes” there can be such a situation. More than 50% problems can be addressed through proper communication and confidence building. In a recent set of events PATS team met with the policy makers to seek the much awaited clarity on section 7(C) and 7(D). It was quite surprising to witness what the policy makers have wisely envisioned and what is deciphered by the tax payer! Perhaps better drafting and clarity on the subject might have helped to reduce the panic that is now a legitimate concern for the nation.
Is it the end of real estate industry? We believe it’s a challenge for the industry and an opportunity to consolidate itself, adjust the inflated prices in some regions and pay its fair share of contribution through taxes. Pakistan has tremendous opportunity for growth in this sector and we believe that it’s just getting warmed up to sail the nation towards true 21st century. End? We say it’s a start of a new era of development for Pakistan and we wish it God’s speed.