The government's decision to halve real estate income taxes has provided the influential realty sector with Rs34 billion in benefits during the current fiscal year. This occurs while the marginalized salaried class saw their tax payments jump by Rs13.5 billion to a total of Rs193 billion.
According to provisional figures, the realty sector paid only Rs42 billion in withholding taxes during the July-October period of the current fiscal year. This represents a 45% decrease, or Rs34 billion, compared to the same period last year. This decline is noted as being steeper despite an increase in the real estate sector following a government policy reversal intended to discourage speculative investment. Real estate sector experts state that while property transaction numbers and values have begun to rise, tax contributions plunged during the first four months of this fiscal year.
The disparity between the two groups has widened significantly. The salaried class paid roughly Rs193 billion in income tax, which is 360% higher than the realty sector's contribution. In the same four-month period last year, the salaried class paid Rs179 billion.
In June this year, on the request of PM Sharif's government, the International Monetary Fund (IMF) endorsed a 50% cut for real estate and a fixed tax scheme for retailers. The influential trading and real estate sectors remained largely outside the net, with the IMF either endorsing tax concessions or keeping its eyes closed. Collecting due taxes from agriculture, real estate, and traders was a component of a three-year $7 billion loan package, and the board is tentatively scheduled to approve the fifth loan tranche next month.
Specific budget changes contributed to the lower realty collections. The government reduced the advance tax on the sale and purchase of immovable property by 50%. For property sales, three slabs were merged into a single rate of 2.75%, down from 5.5%. For purchases, the rate dropped from 2.5% to 1.25%. Consequently, advance income tax collection on property sales fell from Rs52.7 billion to Rs27.3 billion (a 48% reduction), while purchase tax collection dipped from Rs23.1 billion to Rs14.7 billion (a 37% reduction).
