(KarachiCliffNews): Activity in real estate sector has virtually stopped and housing schemes are in danger of being abandoned. Bookings in various housing schemes are being cancelled already. Construction projects are quickly feeling negative impact and 50 affiliated industries such as cement, steel, paints, pipes and others are in danger of being impacted severely. If genuine demands of realtors are accepted and timely action is taken by the government, tax collection from this sector will increase by 500 to 600 percent and number of tax fillers will also increase significantly. This was told by President Pakistan Real Estate Industry Forum (PREIF) Shaban Elahi and General Secretary Ghazanfer Mehbood during an urgent press conference held here in Karachi Press Club on Wednesday. Shaban Elahi said that due to new taxes, collection for government may have increased slightly in the short term, but this is partly due to deals made before July 2016 and partly due to very tax rates. This is likely to come down in the coming months. New housing schemes are no longer viable due to lack of investor interest. Overseas Pakistanis investment in real estate has slowed down significantly and capital is shifting to other investment avenues such as in UAE it is already started, he lamented. Briefing about background of the problem, he told that real estate transactions have been taking place at Deputy Commissioner (DC) rates for many decades. The DC rates were not revised suitably keeping in view the rising rates of real estate. This led to a significant undocumented or grey economy. In short, this means that even if someone invested in real estate with declared money, his investment got converted into undocumented money. This majorly impacted tax payer small to medium investors and especially overseas Pakistanis even though they acted 100 percent in accordance with the law, he maintained. Government recent decision to revise the official valuations of real estate is good in principle however there is complete disregard for the problem described earlier. As a result, investors and builders who were engaged in a perfectly lawful activity, suddenly found themselves in a situation where they are unable to declare the source of investment because of past practices in the market, he added. In support of this argument, General Secretary Ghazanfer Mehbood said that historically, there was no capital gain tax on income earned from Pakistan Stock Exchange and investors were not required under the law to declare their earning or wealth from stock exchange in their income tax and wealth returns. In 2012, government mandated the declaration of income from stock exchange and imposed capital gain tax for the first time. Due to past practices of not declaring their wealth from stock exchange, investors were not able to continue to work in the stock exchange. As a result the stock market experienced one of its worst crashes in the history. Then government offered a relief package to regularize the lawful investment of stock exchange investors. The market rebounded and we reap the benefits of a strong market today in 2016. Government itself is taking credit of Stock Market second ranking in Asia due to this scheme only, he contested. He said that real estate sector is in a very similar position and required a similar solution to kick start its activity. PREIF representatives demanded that for past transactions, a fixed tax may be introduced for existing property owners to declare the property at the FBR value, and pay taxes at 1 percent on the amount of difference between DC value and FBR value. This difference amount could then be added to the declared assets after availing such scheme and payment of taxes. Properties held for more than three years or more should be exempted from such taxes. For future transactions, a fixed tax of two percent to be paid by the buyer of a property that is to be charged on amount of difference between DC value and FBR notified value. This differential amount could then be added to the declared wealth after availing the scheme and payment of taxes, they demanded. To prevent unnecessary speculation, a holding period of four months may be mandated to avail this. A time limit of two years may be imposed to avail this scheme. In the long run, this will eliminate the undocumented economy from the real estate sector and contribute significantly to the GDP of the country, they were of the view. The valuations in FBR tables should be raised 10 percent on a yearly basis till they reach market value. The tax percentage WHT, CGT, Stamp Duty, CVT must be reduced keeping in view that the valuations have been raised significantly. Previously, taxed were paid on DC values whereas now they are paid on much higher FBR notified values. Tax percentages should be reduced as this will lower transaction cost and will result in far greater tax collection for the government. In several areas, the FBR notified values are either higher than market values or very close to it. So the overnight change in valuation is too dramatic. This should be revisited and discussed with the relevant stakeholders of the areas, they observed. If our proposals are adopted in a timely manner, stakeholders believe that tax collection from real estate sector will increase by 500 to 600 percent and number of tax fillers will increase significantly. Real estate sector will gradually rebound and will attract significant local and overseas investment. Construction and 50 affiliated industries will also be saved from disaster, and will flourish in the years to come creating jobs and opportunities. New housing schemes will become viable because of investor interest and will solve housing problem in the long run. However it is important to understand that momentum plays a crucial part in any free market. So with every passing day without taking any corrective measures, we are losing the opportunity for a rebound of this sector. Once a capital flight reaches high level, it might take a very long time years or decades to regain investor confidence and attract them back to this sector. We must save this sector from collapse and must not lose the opportunity of attracting investment from local and overseas Pakistanis. If government gradually brings this informal sector of economy into mainstream, real estate would contribute even more into the economy of Pakistan. We hope that government will consider these proposals and reap benefits of significantly higher tax collection and increased number of tax fillers.
About PREIF:
Pakistan Real Estate Industry Forum (PREIF) is an independent community which aims to provide a platform to study, discuss, debate matters of interest related to Pakistani real estate and propose practical steps to keep it a clean and organized sector which makes its contribution to the economy of Pakistan.