Pakistan NA Approves Real Estate Tax Amnesty

Pakistan NA Approves Real Estate Tax Amnesty

Real estate Tax amnesty has finally been approved by the National Assembly of Pakistan. As per the latest tax amnesty scheme you can whiten any amount of money by paying 3 % Tax on it if you purchase a property. In this post we will analyze the Tax amnesty scheme in general and how it may impact DHA Lahore property market. The most important things you need to know are as under:

• There is no change in the regular taxes on the Pakistan real estate sector. You will still pay the advance tax , CGT and all other taxes levied as per existing rates and percentages.
• Real estate Tax amnesty is only applicable to those individuals who have got black money.
• Real estate Tax amnesty is only applicable to the difference of FBR Value and DC rates or Actual property value and DC rates.
• You must have white money for the DC rates as per existing rules. You can not use the 3% Tax amnesty scheme to white the money needed for DC rates so you will have to use the existing methods including foreign remittance in case you do not have enough white money for DC rates.
• You can also pay 3% on the difference of actual value of the property and DC rates and all your money will be white. It is important to note that if you do a foreign remittance to convert your black money into white it will cost you roughly 6 % and is challenge-able. However by paying just 3% which is 50% less than the method used by investors to convert black money into white , you can now safely purchase a property with immunity.
• You can also pay 3% on the difference of DC rates and FBR value, however if you sell the plot within 3 years, you will need to pay CGT at respective percentages of 10, 7.5 and 5% for 1st , 2nd and 3rd year respectively, if you want to declare the entire sale amount as white money.
•  There is no time limit on the Tax amnesty scheme.

Analysis of Tax amnesty

Real estate Tax amnesty will surely help the black money transactions in the real estate sector. Investors will feel secure and more comfortable but it comes with a price, lets analyze a scenario and see how it will impact the trade.

You purchase a plot in DHA Lahore which has 3 different prices for DC rates , FBR rates and Actual price as under:

DC Rate : 5000000

FBR Value : 7500000

Actual Value : 20000000

Now you can just pay 3% on the difference between FBR value and DC rate as under and FBR will not inquire you about the source of your funds:

FBR Value – DC rate or 7500000 – 5000000 = 2500000

3 % of 2500000 = 75000 Tax

Now you paid 20000000 for the transaction and if you can wait for 3 years all is fine, but if you sell it within 3 years than you need to pay CGT as per existing rules if you want to declare the entire money white. However you can always sell it with in 3 years and do not declare the profits but that will keep your excess profits and money as black.

or

You can pay 3% on the difference of Actual value and DC rate as under :

Actual value – Dc rate 0r 20000000 – 5000000 = 15000000

3% of 15000000 = 450000

Now all your money is declared white and if you sell it even with in one year you will only pay CGT as under

10 % of Price of purchase – price of sale

Real estate tax amnesty will certainly have a long lasting impact and is a win win for both investors and the Government in the long run. However we do not see any major effects in short term because technically the 3% taxes have further increased the cost per transaction.

What is good for you?

It all depends on what you intend to do .

• If you are a short term trader who sells and buys in under an year, i will suggest that you pay 3% on actual values and get all your money white. This is one time and once all your money is white, you can continue declaring actual values without paying 3% taxes.
• If you are sure that you will not sell your plot in 3 years time than just pay 3% on the difference of FBR value and Dc rates.

Impact on real estate sector

• I think this will be a good thing for real estate and it will stabilize the market. This will eliminate the fear factor and investors will buy and sell more aggressively.
• A lot of black money may be pumped into real estate which will holster the falling prices.
• There is no time limit or set duration for the amnesty scheme therefore investors will not be in a hurry to take advantage from it.
• Short term trading may suffer for some time though as investors with black money may be worried about paying higher taxes.
• Genuine buying will most certainly increase.

What do we recommend?

• Buy real estate as it is in a state of  correction and pay 3% on the actual values and get rid of the fear forever. You need to understand that a Tax payer pays up to 35% as income tax and in contrast you just have to pay 3%. This is a very low cost to pay against black money.
• Continue to buy in sectors with genuine growth such as Phase 8 of DHA Lahore.
• We see that the prices in 9 Prism of DHA Lahore are still not investment worthy, it is better to wait and buy at a later time. However input of black money in summers of 2017 may be a good time for some short term trading in 9 Prism.

Lastly this is a positive step and will put the real estate market back on track. Please stay away from the hype and avoid investing into bubbles. At imlaak we care about you and at an initial stage we only recommend that you invest for long term (6 months to 1 year) in sectors which have a genuine potential. Avoid short term trades as most people will be paying higher taxes and it may be hard to make profits. Also we follow a genuine growth investment plan and do not recommend jumping into investment bubbles unless properly planned and all risks understood by our clients.

Captain (Retd) Shahnawaz Yaqub Bhatti

Investment Consultant and CEO at Imlaak

Mob : +92 333 1717170 ( Whatsapp)

Skype : Shahnawaz.yaqub