Property tax cuts proposed

The government plans to cut taxes on the property sector and lure Middle East conflict-affected overseas Pakistanis to bring back their money without fear of harassment, aiming to encash the opportunity to boost the struggling sector. Government and market sources told The Express Tribune that Prime Minister Shehbaz Sharif this week gave the go-ahead to finalise recommendations for rolling out the real estate package; some of these measures can be implemented before the budget. Once in-house work is completed, Pakistan will take up the matter with the International Monetary Fund (IMF) for its endorsement, said government officials. Following the premier's green signal, a follow-up meeting was held on Friday to further fine-tune the proposals. The prime minister has directed authorities to examine the possibility of rationalising taxes on the property sector and finding avenues to attract investment from overseas Pakistanis, said Capt (retd) Mohammad Mehmood, Secretary Ministry of Housing, on Friday. His ministry is leading the initiative, whose successful execution can boost construction activity and offset declining foreign investment in Pakistan. The domestic real estate sector contracted during the past couple of years due to heavy taxation and economic stabilisation policies. Real estate sector valuations in the Middle East have also declined significantly over the past month after Iran attacked American bases in the region, which panicked investors and dented confidence. Government sources said a proposal has been developed for a self-declaration regime for overseas investors aimed at attracting their investments into the sector. There are prospects that investors may withdraw their investments from the real estate sector of the Gulf and other countries, and with the right set of policies Pakistan can take advantage of the situation. Last week, the government rolled out a revised housing financing scheme with lower interest rates and a higher loan cap of up to Rs10 million to facilitate buyers. It has now been proposed to give fixed targets to banks for disbursing loans. The government has cut interest rates to as low as 5%. The financing schemes should be expanded to housing finance companies and non-banking financial institutions that cater to low-income segments, said Malik Ahsan, a real estate sector analyst. Sources said the government would attempt to reduce withholding taxes on the sale and purchase of properties under Sections 236C and 236K of the Income Tax Ordinance. There is a strong view to reduce the tax rate on the sale of plots from 4.5% to 1.5%. On purchases, there is a proposal to cut the rate from 1.5% to 0.25%, sources added. In the last budget, the government increased the tax on sales from 3% and halved it on purchases; however, the total tax on each transaction effectively remained unchanged at 6%. Prime Minister Shehbaz Sharif has already expressed a desire to abolish the 1% deemed income tax on properties, which has been challenged in courts over its constitutionality. There is also a proposal to abolish transaction taxes on the first ownership of a home or plot of up to one kanal. Another proposal suggests treating housing loan instalments as an expense instead of part of income to reduce the tax burden. Sources said that if the IMF raises objections to a reduction in tax rates, the government may consider lowering property valuation rates. To simplify multiple valuation benchmarks used by districts and the Federal Board of Revenue (FBR), there is also a proposal to introduce uniform valuations, sources added. To avoid defaults and misuse of housing finance facilities, the government is expediting pending legislation, sources said. The government will expedite approval of the National Housing Policy, the Condominium Law and the Foreclosure Law. According to a press statement issued by the Prime Minister's Office this week, Shehbaz Sharif was apprised that special measures were being taken to attract investment in the construction and housing sector by foreign investors and overseas Pakistanis. The measures aim to increase housing projects, promote economic activity and create employment opportunities in the sector, the meeting was told. During the meeting, the premier said it remained the government's "top priority" to provide housing loans. The prime minister added that the government would ensure the "protection of foreign investment in the sector". "Promoting investment in the construction sector will not only boost the economy but will also create millions of job opportunities," the premier was quoted as saying. He was also briefed that legal reforms in the housing sector were in their "final stages". The premier was informed that a low-cost loan system had been implemented for a low-cost housing project and that banks would be given targets in the next phase. The prime minister directed authorities to finalise the measures and ensure implementation in consultation with all stakeholders.