After shocks of property tax amnesty scheme
Tax amnesty scheme for real estate sector approved
National Assembly has finally approved a tax amnesty scheme for real estate sector on Wednesday, 30-11-2016. According to this property amnesty scheme, people have to pay 3% tax on the difference between the old DC rate and new FBR rates to whiten the black money. Another important point of amnesty scheme is that there is no time limit or duration of this amnesty scheme. So people with black money can whiten it anytime by paying just 3% tax.
Effects of real estate amnesty scheme
Destruction of tax structure in Pakistan
In Pakistan individuals have to pay maximum of 35% taxes on their earnings. But on late payment, penalty is 100%. So tax payers in Pakistan pay 35% taxes on their income and their net saving after taxation is just 65%. On the other hand, investors in reality sector will have to pay just 3% and 97% amount will be declared as white money. This will totally destroy the tax structure in Pakistan.
Now real estate sector has legal license to whiten black money
Real estate sector is generally considered as the best sector to whiten the black money. But now people with black money will invest in real estate sector for just one purpose, to whiten their capital by paying just 3% taxes. Now onward, real estate sector will be used as sure way to whiten the black money.
Unaffordable property prices in future
Property prices are unaffordable for majority of Pakistanis. This is just because of black money in real estate sector. Prices were declining, but now property prices will be sky-high once again. Prices will double within short span of time. But unfortunately wages have never increased by same ratio. So in long run, house affordability will decrease and there will be more renters than home buyers in Pakistan.
Winners and losers of real estate amnesty scheme
Realtors, investors and people with black money are at advantage
Property transactions were 80% down since 1 July 2016 due to new tax laws. But now we will see increase in property transactions. This will definitely increase the income of real estate agents. Investors will get good returns on investments due to coming storm of black money investments in reality sector. People with black money will be biggest winners as they can whiten their money by paying just 3% tax.
Tax payers and genuine buyers are at disadvantage
Tax payers and genuine buyers are the biggest losers of property tax amnesty scheme. Tax payers have to pay more than the people with black money. Similarly, genuine buyers with white money will be unable to afford to buy properties due to sky-high prices. The purchasing power of real home buyers is very low as compared to people with black money. Home ownership will decline and renters will increase.