KARACHI: The real estate and construction industry remained the main focus of the Pakistan Tehreek-e-Insaf (PTI) government in the budget for FY21 as it reduced taxes and allocated funds for giving a boost to construction and allied industries in an attempt to revive economic growth and create job opportunities.
The government, however, kept complete silence on proposed changes to mobilise new investment in the Pakistan Stock Exchange (PSX), which is considered a barometer to gauge economic performance of the country.
The government is giving "relief in taxes on the income on sale of immoveable property (real estate)," Federal Minister for Industries and Production Hammad Azhar said while unveiling the budget in the National Assembly on Friday.
There will be no tax on the income emanating from the immovable property if the buyer sells it after four years from the date of purchase. "The maximum (duration) for availing tax exemption is being reduced to four years from eight years," he said.
Besides, the rate of capital gains tax (CGT) on the sale of property will be reduced by 25% each year.
The CGT is charged at the rate of 20% if the profit on sale is Rs20 million or more in the first year from the date of purchase. The CGT rate is 15% if the profit stands below Rs20 million, it has been learnt.
"The government will not ask the source of income spent on construction (by builders and developers). The fixed tax on sale by the builders and up to 90% reduction in taxes on the purchase of home by the low-income people will continue in FY21," the minister said.
"The government has provided Rs30-billion (subsidy) to the Naya Pakistan Housing Authority to provide houses at lower prices to the people falling in the low-income segment," he said.
"Furthermore, the Akhuwat Foundation has been allocated Rs1.5 billion to offer Qarz-e-Hasna (interest-free loan) for the construction of houses by the low-income people."
Earlier, the government introduced a comprehensive relief package for the construction and allied industries by announcing huge tax incentives in a bid to create job opportunities for daily-wage earners and reactivate 40-70 industries such as those of construction material, paints and wood.
The government came up with the package in mid-April following the coronavirus outbreak.
Pakistan Real Estate Investment Forum President Shaban Elahi, however, did not find the relief for real estate and construction relevant, believing it would not help revive economic activities.
"The government has given relief to sellers instead of buyers by reducing the rate of CGT and minimising the duration for CGT exemption on immoveable property," he said.
Similarly, the relief for the construction industry has been targeted at the developers instead of buyers.
"If the government wants to revive economic activities through real estate and construction, then it should announce such relief for the buyers," he remarked.
He said overseas Pakistanis were the largest investors in the real estate and construction industry. "They (overseas Pakistanis) should be given one-time relief by not asking the source of income like the government did for the builders," he said.
CGT on stocks
The PSX had proposed exemption or reduction in CGT on the sale of shares at the stock exchange. The CGT rate is 15% on a shareholder who sells stocks at any point in time.
"We are a little bit disappointed (over no reduction in CGT)," remarked PSX Managing Director Farrukh Khan.
The reduction in CGT on shares would have mobilised new investment in the PSX and generated additional revenue for the government.
The government had got revenue of Rs1.3 billion in the shape of CGT in previous fiscal year 2018-19. It, however, got no CGT in outgoing fiscal year 2019-20 as a majority of traders booked losses. The CGT can be adjustable against losses in coming years.
"No change in the CGT rate for stocks should be neutral for the stock market," he said, adding that the government had given an overall balanced budget keeping in view the coronavirus challenge.
"It, however, should have announced a comprehensive plan for privatising loss-making state-owned enterprises, which are a huge burden on the economy that eat up huge public (taxpayers') money."
Besides, the government should have announced a reduction in its expenditures, which was in its hands, he said. "Chasing the tax collection target is not in its hands in these uncertain times under the coronavirus pandemic," he said.
Published in The Express Tribune, June 13th, 2020.
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