Unravel the mysteries around. Pakistan Budget 2024-25 And its impact on real estate investment. Learn about active filers, non-filers, late filers, tax rate changes, and how to navigate the new landscape.
Pakistan Budget 2024-25: Understanding Tax Implications for Real Estate Investors (Active Filers, Non-Filers, Late Filers)
The recent budget in Pakistan introduced a new term, ‘Late Filer’, Which has raised questions among taxpayers. The purpose of this article is to clarify the differences between active filers, non-filers, and late filers and their tax implications.
Active Filers
Active filers are individuals or entities who file their income tax returns within the due date, without incurring any late filing penalty charges. In Pakistan, the filing period is usually from July 1 to September 30, with an initial period of 90 days. Active filers are considered bona fide taxpayers and are eligible for certain benefits and tax incentives.
Non-filers
Non-filers are individuals or entities who fail to file their income tax returns or have not filed their previous returns. Consequently, they are not considered active taxpayers and face higher tax rates on transactions such as property sales, capital gains, and investments. Additionally, the Federal Board of Revenue (FBR) is empowered to block SIMs of non-filers.
Late Filing (Late Active Filers)
Late filers are individuals or entities that file their income tax returns after the due date. When they file their returns, they also have to pay a late filing penalty. While they are considered active taxpayers, they are subject to higher tax rates than regular active filers but lower than non-filers.
Implications of late filing
Tax rate will increase on late filers:
- Buying and selling of property
- Capital gain
- Investing in national savings or savings accounts
Additionally, higher tax rates may also apply if late filers attempt to make transactions such as buying and selling vehicles or real estate.
Avoid late filing status
To avoid being classified as a late filer, it is important to:
- File your income tax return within the due date.
- Hire a qualified tax consultant to minimize mistakes and avoid future penalties.
- Stay informed about tax updates and consult your tax consultant regularly.
Importance of Tax Filing
Being a tax filer is important in Pakistan for various reasons, including:
- Facilitation of financial transactions
- Applying for a visa
- Opening bank accounts
- Savings and investment in national savings
- Purchase of property
Did the new tax affect the property market? | Budget 2024-25 Complete Guide
The recent Pakistani budget has raised some concerns among property investors and real estate agents. This article aims to clarify the new regulations, dispel myths, and provide a comprehensive understanding of the revised tax structure.
Understanding File Returns
Filing a tax return does not mean paying taxes but declaring your income. FBR. Individuals with income below taxable limit can file ‘Nil’ return. However, we all pay taxes on our electricity bills, mobile bills, vehicle tax and sale/purchase of property etc. While the filer can claim/refund all these taxes through our tax return.
Debunking the Myths: Getting Taxed
The term ‘gains tax’ is often misused. Under Section 236C, 3% withholding tax is charged at the time of transfer of property. It is not the actual profit tax, which is calculated and then adjusted at the end of the financial year based on the profit earned.
Changes in Withholding Tax Rates (Section 236C)
The government has revised the slab of withholding tax for sale of property. The tax rate on properties up to PKR 50 million remains at 3%. However, for properties between PKR 50-100 million, the rate increases to 3.5%, and for properties above PKR 100 million, it increases to 4%.
Late Filer Penalty
Late filers will have to pay a higher withholding tax rate, which will double for each category that pays.
- 6% instead of 3% (0 to 50 million)
- 7% (50 to 100 million) instead of 3.5%
- 8% (above 100 million) instead of 4%
Effects on the real estate market
An analysis of real estate transactions shows that more than 80% of transactions fall between 0 and 50 million. Which has the same rate of withholding tax which is 3%. Only a small number of transactions involve properties worth more than PKR 50 million, which now face a slightly higher rate (3.5%). Thus, the impact on the real estate market is minimal.
Changes in Gains Tax
Earlier, the tax rate varied depending on the holding period of the property. The new budget proposes a flat 15% gain tax rate, irrespective of the holding period. However, this is applicable only for properties purchased after July 1, 2024. Existing transactions are not affected.
Federal Excise Duty
The budget has introduced 5% federal excise duty on allotment of new plots. This duty can be borne by developers and passed on to buyers. However, 99% of existing transactions do not allocate new plots and hence have no impact.
Result
The recent tax changes have created some confusion but their actual impact on the real estate market has been nominal. It is important to rely on accurate information. By understanding the details of the new regulations, real estate investors can make informed decisions and navigate the market effectively.
Read more: https://lahorerealestate.com/pakistan-real-estate-tax-2024-25-will-prices-rise-or-fall/
