Islamabad: Prime Minister Shehbaz Sharif has postponed the decision on a tax incentive package to revive the real estate sector.
The issues of providing subsidies for promoting construction activities and exemption from declaring sources of income have not yet been settled. Tax authorities have once again opposed the proposal by the business community to provide amnesty equivalent to Rs 50 million to those buying a house, shop or office for the first time.
Government sources told The Express Tribune that a day ago, the Housing Sector Task Force met Prime Minister Shehbaz Sharif and informed him about the recommendations to reduce taxes on property purchase and abolish federal excise duty. A filer pays about 8 percent of the property value on the purchase of property.
According to sources, there is an overall agreement on reducing taxes, but the fundamental issues are yet to be resolved. The FBR chairman supported the proposal to abolish the 3 percent federal excise duty, saying that taxpayers have already called the unfair levy controversial and the matter is also under discussion in the courts.
The FBR is demanding that a 3 percent duty be imposed on old houses that have been sold more than once. Sources said that the prime minister has tasked Economic Affairs Minister Ahad Khan Cheema with finalizing the incentive package and taking the IMF into confidence.
The meeting discussed proposals for reducing tax on purchase and sale of property, abolishing federal excise duty, providing interest subsidy on loans for construction of houses, and providing income amnesty of up to Rs 50 million to first-time buyers.
Some members of the task force expressed concern that the incentive package could lead to capital accumulation in the real estate sector and a resurgence of speculative activities. Arif Habib, one of the prominent businessmen, suggested that first-time home buyers should not be asked for their source of income up to Rs 50 million.
However, FBR Chairman Rashid Langrial opposed the proposal, saying that it would be tantamount to giving tax amnesty, which the IMF would not allow.
Arif Habib explained that due to the large size of the informal cash-based economy, the corporate sector and banks are reluctant to start large construction projects. His proposal does not fall under the definition of amnesty at all as it would be limited to genuine first-time buyers only.
The Prime Minister directed the government officials to sit down with Arif Habib and find a solution to the problem. It emerged in the meeting that the business community would meet IMF officials next month to discuss the agenda of the Rs 50 million amnesty scheme.
The Prime Minister had formed the housing sector task force after the real estate sector activities slowed down due to heavy taxes and overall slow economic growth. The real estate sector incentive package aims to boost construction and economic activities in the country.
The meeting also discussed providing interest rate subsidies to enable the low and middle income groups to take bank loans for house construction. The Minister of Economic Affairs has been asked to come up with recommendations by next week. The central bank has set the policy rate at 12 percent, but home loans are still more expensive at over 17 percent.
The National Assembly’s Standing Committee on Finance had this week postponed the approval of an amendment bill that proposed a ban on the purchase of properties without specifying the source of income. According to government officials, no relief package for the real estate sector has been finalized yet, and consultations with the provinces and the IMF have not yet begun.
