The government is planning to withdraw 20% deemed income tax imposed on the real estate market in the budget that may impact its earnings by another Rs. 15 billion, putting the total relief under discussion for the top five prominent firms to Rs. 75 billion.
The suggestion was under discussion after the real-estate industry protested about slowing down of activity since July. However, the final decision was awaited.
A new Section 7E has been introduced in the Income Tax Ordinance wherein a person who generates income equivalent to 5% of the fair market value of the capital assets placed in Pakistan, shall be taxed at the rate of 20%. The FBR has claimed that the effective rate of tax is 1%.
In the month of June, FBR’s Inland Revenue Policy member indicated that the government would earn revenue of Rs30 billion. Nevertheless, before adoption of the legislation, the government had made several amendments to the definition of properties that would be subject to the charge and resultantly the extra income projections were decreased to Rs15 billion.
Earlier, the government was mulling offering Rs60 billion tax exemption to the dealers, bankers, stock market and transporters. With the inclusion of property industry, the relief might go up to Rs75 billion.
While the authorities are contemplating cutting the tax liability of affluent individuals and powerful businesses, the salaried class has indeed been forced to endure the burden of economic downturn in the form of increased taxes and 25% inflation.
The administration is proposing to execute the relief measures by adopting a presidential ordinance, which would also incorporate taxing measures to “nullify” the negative revenue effect by raising the cost on other sectors.
Earlier on Tuesday, Finance Minister Miftah Ismail confronted challenging questions at a media conference regarding his plan to offer tax support to influential industries.
Responding to a query on doling away Rs42 billion to the traders by eliminating the fixed tax. He said that under the new tax system the traders would still contribute Rs27 billion in the current financial year. The minister emphasized that he’d ensure that the contribution to the economy by small businesses rise to Rs27 billion in the current financial year from Rs6 billion previous year.
He stated that the deficit of Rs15 billion – between the previous and new taxation system for the traders – will be addressed by taxing on other industries.
Mr. Ismail further pointed out that the dealers had ceased paying power bills, which jeopardized the government’s income collection.
The minister confirmed that there was a proposal to decrease the income tax on banks against the low advances-to-deposit ratio (ADR) (ADR). In the budget, the government raised the ADR rates with effect from tax year 2022, which will be overturned, he stated – for up to 40% ADR, the government raised the income tax from 40% to 55% in the budget.
The finance minister indicated that banks were asking a drop in the rate from 55% to 50% but no final decision had been reached yet. For the ADR in the range of 40% to 50%, the government has raised the tax rate from 37.5% to 49%. Now, there is a plan to return back to 37.5% for tax year 2022 and put the rate at 45% for tax year 2023.
Banks may get at least Rs. 10 billion to Rs. 12 billion income tax reduction. However, the minister indicated that the negative income effect will not be more than Rs. 5 billion.
The administration is contemplating eliminating the deemed income tax despite the charge not being relevant to many real estate assets.
