The Finance Bill 2023 has proposed a deemed income tax on immovable property at a rate of 20%. This tax has been proposed to generate additional revenue for the government and discourage the hoarding of property. The proposed tax will be charged on the fair market value of the property, which is determined by the FBR. This article aims to provide an overview of the proposed deemed income tax on immovable property in Pakistan.
Exclusions from the Deemed Income Tax
The finance bill has made some significant exclusions to the deemed income tax on immovable property
These exclusions are as follows:
- One self-owned residential property
- Self-owned property through which business is carried out
- Agricultural land which is used for agriculture activity not including farmhouse and its annexed land
- If the total value of immovable property does not exceed Rs. 25 million
- Property owned by the prevention government, local government, local authority, development authority
- If the tax charged under section 15, that is tax on property income, is more than the tax calculated through deemed income
Impact of the Deemed Income Tax on the Real Estate Market
The proposed deemed income tax is expected to have a significant impact on the real estate market. The real estate sector is one of the most important sectors in Pakistan, and it is expected to slow down due to the proposed tax. The tax is expected to discourage investment in the real estate sector, which will lead to a decrease in the prices of the properties. This, in turn, will negatively affect the construction industry, as well as other industries that are linked to the real estate sector.
The real estate sector is also a significant contributor to the country’s GDP. The slowdown of this sector will have a negative impact on the country’s economy. The government will have to come up with alternative measures to generate revenue to cover the loss due to the decrease in investment in the real estate sector.
The proposed deemed income tax on immovable property is expected to generate additional revenue for the government. However, it is also expected to have a negative impact on the real estate sector, which is one of the most important sectors in Pakistan. The exclusions made in the finance bill ensure that the tax is only charged on high-value properties, which will prevent the burden of the tax falling on the middle and lower class. The government will have to find alternative measures to generate revenue to cover the loss due to the slowdown in the real estate sector.