Impact of Latest Property Tax 2016 on
In the budget 2016 Federal government has increased taxes on the real estate sector. A lot of rumors are spreading in the market about how the real estate market will react to the newly imposed Property Tax 2016. I believe that Real estate is much more dependent on other factors for its growth than the taxes .However it is important to analyze the short term effects of these taxes to find the best time to buy a much more profitable property investment.
The details of the newly imposed taxes by the Government are as under:
1. CGT (Capital Gain Tax)
Payable to the federal government when you file your yearly tax returns by the SELLER as per Property Tax 2016. This tax makes you liable to pay the 10% as tax to the Federal government on the difference of gain between your buying price and selling price at commercial rates. These commercial rates will be evaluated by the licensed state bank evaluators.
Let us assume that you purchased a plot in 2015 at 2 Crores and sold it in 2017 at 3 crores. The price difference is 1 crore, so you will have to pay 10% of total gain in the price etc 10 Lacs as the CGT. The tax is only valid for property sold within first 5 years of its purchase and exempted after 5 years from any CGT. It is also noteworthy that if the commercial prices have not increased than there is no CGT on selling your property.
2. Advance Tax on Sale Section 236 C
Government has increased advance tax on sale as per Latest Property Tax 2016 on Real Estate for a filer from 0.5% to 1 % and for a non-filer from 1 % to 2%, payable as per DC rate and not as per commercial rates as previously rumored.
3. Advance Tax on Purchase Section 236 K
Government has increased advance tax on purchase as per Latest Property Tax 2016 on Real Estate for a filer from 1% to 2 % and for a non-filer from 2 % to 4%, payable as per DC rate and not as per commercial rates as previously rumored.
Aim of the Government
The aim of the government behind increase in Latest Property Tax 2016 on Real Estate are :
Increase its tax net and revenues on investments made in the real estate sector.Increase white money circulation in the real estate sector.Redirect the money from real estate into industrial sector.Effects of Latest Property Tax 2016 on Real Estate
There are a lot of rumors that the latest property taxes 2016 levied on real estate will affect the real estate market negatively. While this seems to be the most simple outcome the truth may be a far cry from what it seems. For us in the real estate market it is a signal to buy more real estate on correction . Real estate is much more dependent on other factors for its growth than the taxes . Growing Economy , Population and CPEC will over shadow the impact of these taxes in the real estate sector.
Who will be effected?
The effects of advance tax on the seller or purchaser are insignificant and will not have any major implications. The CGT, however is scaring most people and rightly so. As per the Federal government CGT will be levied on properties being sold within 5 years of purchase. No CGT will be levied on properties which are being sold after 5 years of purchase. Governments intends to direct the investors to invest their money in other sectors such as industry etc. Therefore creating more jobs and economic boom in the country.
The short term investor is going to suffer and will have to pay 10% of his profits if he sells the property before 5 years. Good thing is he still gets to keep 90% of the profit. CGT will however have minimal effect on medium term and long term traders as the profit margins will be enough to cover up the 10% CGT.
Let us explain this by 3 examples.
Short Term Trader
You buy a plot at 10 Million and you sell it at 11 Million after 3 Months. You will be liable to pay One lacs as CGT. Similarly if you make a bigger trade of 100 Million and sell it at 110 Million, you have to pay 1 million as CGT. You still pocket 9 Lacs and 9 Million respectively making short term trades.
Medium Term Trader