The real estate sector is the latest to be affected by the government’s tax reform measures, and it has affected traders more so than it has affected true buyers and sellers. In the latest development, the Federal Board of Revenue (FBR), which has been given the powers to determine property valuations, has assured builders that they will be taken onboard regarding federal budget measures. This comes after developers, builders, and traders expressed their displeasure over the government’s move to change income tax laws for the real estate sector. The measure invited severe criticism from almost all quarters, with many stakeholders feeling that their “bread and butter” had been ruined, blaming the government for an ill-conceived move meant to only increase tax revenue through a sector that lay in the provincial domain.
The government, on the other hand, stated that the change to income tax laws was restricted to taxing capital gains, which was the centre’s subject. It also said that the move would bring around Rs6-7 trillion stashed in the real estate sector back into more productive sectors of the economy. This is not entirely true. While one can concede that growth of the real estate sector has come on the back of black money finding its way into plots of land, which are always a safe bet even in times of economic turmoil, a genuine demand and supply gap has always existed — especially in case of the mega cities. Additionally, the lack of knowledge on genuine investment avenues has meant that most believe real estate is the way to go. Meanwhile, taxing capital gains is the government’s way to grab a slice of the increasing pie. Capital gains are an especially shrewd way to increase revenue when land is bought and sold like stocks, even though it is conceivably not a liquid asset. But concerning those development projects that have not been completed, property files were being passed around like a football. And that is where the government felt it could increase revenue. In essence, the government’s measure has really affected traders and not genuine buyers/sellers who are in search of a place to live.
Published in The Express Tribune, September 19th, 2016.
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