President of the Islamabad Chamber of Commerce and Industry (ICCI), Ahsan Zafar Bakhtawari, addressed the new fiscal policy adopted towards the real estate sector, claiming that the imposition of higher taxes is discouraging foreign investment. The demand he put forth was significant reductions, something that may not be entirely possible. After immense debate and pressure, the government finally brought the unregulated sector into the tax bracket and for good reason. To revert this sound decision would not only rob the economy of revenue, but prove to be immensely unfair to other sectors of the country.
Section 7-E of the Finance Act 2022 deemed every property owner to have derived income worth 5% of their property value. Then it imposed an income tax rate of 20%. All in all, it seems like a small percentage of tax to pay from the exorbitant rates at which property is exchanged between the elite class of society. In fact, the majority of the property owners who trade property files amongst themselves are well-to-do overseas Pakistanis. They not only enjoy the benefits of high returns, but they do so in dollars. The phenomenon observed here is the maximum accumulation of wealth by the elite. Meanwhile, the prices of property continue to inflate and the purchasing power of the masses declines significantly.
Of course, with newly imposed tax policies, the real estate sector is bound to experience some hardships. Investors are slightly discouraged from buying and business activity may have stagnated, but it was about time that this sector was brought under the tax bracket. For far too long, real estate has enjoyed fiscal benefits like tax exemptions and subsidies that have caused immense financial burden on the financial exchequer. Considering this is one of the most lucrative sectors of the country, it was absolutely essential to force the sector to start paying its dues to the state. All other industries have been targeted with higher taxes, and it is only fair and sensible for the active real estate sector to be brought under the ambit of new fiscal laws as well.
On the other hand, we must acknowledge that we have done a disservice by grouping the construction sector with the real estate. The sector was given similar tax amnesties as the real estate sector, but only limited to the private housing market. Considering that it has 70 other allied industries, and is largely regulated, it needs the state to devise a tailored approach. Grouping both sectors together, and passing a blanket-policy, has the potential to do more harm to all parties involved than good.