The federal government of Pakistan is about to present the annual Pakistan budget for June. It is referred to as the finance bill 2024-25 during the national assembly after the Eid-ul-Azha fiscal year 2024-25 holidays. If we quickly glance at the past finance bill for 2022-23, we realize that the Pakistan budget had property sales tax for 2022-23 in Pakistan as per persons or classes of persons with any income, gains, and profits arising due to economic factors.
Previously, for the fiscal year 2022-23, as per the Finance Act, 2022, a resident owning immovable property or commercial real estate investments in Pakistan is subject to tax on deemed income from such properties, which is taxed at 1% on gains by FBR. Whereas, the current budget tax on immovable property is proposed to be 3% on filers and 10.5% on non-filers during the current fiscal year.
The new budget is a document that will compile aggregated information and data about the capital, revenue, and external receipts on the current developments involving the federal government for the upcoming fiscal year 2024-25.
Let us precisely study how the country’s future growth and development depend on taxes and the budget. We anticipate that the FY 2023-24 growth will be merely 3%. Unfortunately, it was the lowest in the 77 years after independence. Several aspects have resulted in the current scenario. The primary aim is to cut down expenditures and increase income generation.
Pakistan Annual Budget: Finance Bill 2024-25
When there is a fiscal deficit or negative balance in the finance bill, thus, the government aims to take the initiative to propose a better budget tax to equate the difference between expenditures and the profits earned. Hence, the new budget has well-planned policies.
The government’s budget is based on different analytical expectations that will be gauged through the rugged terrains of the economy. The government plans to levy direct taxes as compared to indirect taxes. Reducing indirect taxes will boost the economy by upgrading, fueling every sector of the economy. The government aims that the Pakistan federal budget 2024-25 will be divided into two points:
- Enhance income generation.
- Tax collection is a small fraction of tax due to the GOP.
Currently, the retail and wholesale sectors in Pakistan have the lowest tax rates. The government plans to characterize them by high taxes as the retail sector is the third largest contributor to the country’s GDP and has crossed $152 billion, being the second largest employer.
Also, the builders in the real estate industry will pay only 0.8% tax, and all their liabilities will vanish compared to the salaried class. Hence, investment in the commercial real estate or residential sector is the healthiest option to save hard-earned money because the salaried class is expected to pay an estimated 35% tax, and the corporate sector has to pay merely 29% or 10% tax.
Budget Government Employees
The Pakistani government aims to reduce inflation; it targets to bring it down by 5 – 7% by September 2025. Inflation has declined to 20.7% y/y from 23.1% in February. Even core inflation has reduced significantly. As per the State Bank of Pakistan’s Monetary Policy Committee, inflation will remain downward/falling.
In the upcoming Pakistan annual budget 2024-25, the government employees’ salaries are expected to increase by 10%. However, the increment is subject to approval and will be effective from July 2024.
Capital Gain Tax on Sale of Property in Pakistan
Pakistan Stock Exchange (PSX) has proposed for the new budget for 2024-25 that Capital Gain Tax(CGT) rates on listed securities be aligned with CGT on the sale of immovable property. This will eliminate the tax distortion between different asset classes. The Federal budget proposes for the financial year 2024-25 that CGT on all future contracts and derivatives to be traded on PSX be taxed in line with future commodity contracts traded at PMEX.
Some of the advantages or perks are as follows;
- It attracts & encourages Foreign Investment into the capital market.
- The capital market will tackle structural imbalances that adversely hit the economy of Pakistan.
- PSX proposes a tax rate for SME companies so they can thrive.
- PSX’s proposal to rationalize the tax rates will generate investments in stocks for the Federal government.
Education Budget of Pakistan
As per current rumors, the HEC budget for educational institutes is expected to decrease from 65 Billion to merely 25 Billion for the financial year 2024-25. Also, the allocation of the budget is limited to only Islamabad University, which is the federal capital of Pakistan. Earlier, it included the provincial universities, but due to this reversed decision, there would be adverse impacts on the educational institutes.
The institutes will suffer immensely as universities might shut down forcefully. The lack of budget will have prevented the institutes from providing quality education. The FAPUASA (Federation of All Pakistan Universities Academic Staff Association) demands that the decision be immediately reversed. The funding to HEC to contribute to the successful running of the universities is essential; otherwise, the hard work and devotion that HEC has contributed for two decades will go in vain.
Property Gain Tax
Let us quickly glance at the Property Gain Tax in Pakistan. This tax is called Property Gain Tax or Capital Gains Tax (CGT). It is based on the property holdings for a complete one year.
- CGT rate is 15% on property held for one to two years but is reduced to 10% for those held for three years,
- Further reduced to 5% – Properties held for over three years are exempt from CGT. Hence, this favorable tax policy encourages investments in real estate industry.
Property Tax in Pakistan
If we study deeply, we will come to know that property tax in Pakistan is designed and levied by the provincial governments. You will find variations across all the provinces and the different types of properties. Let us figure out these points to better understand the concept of property tax in Pakistan.
- In Punjab, residential properties with a rental value of PKR 200,000 are taxed at 5%, whereas commercial properties with similar rental values are taxed at 20%.
- In Sindh, the tax rates depend on the property’s location and vary from 6% to 25%.
The annual accumulation of the tax collection is significant to local revenue generation. In the year 2023; Sindh collected tax revenue approximately of PKR 20 billion, and in Punjab the tax revenue accumulated to PKR 35 billion. All these funds are essential for the development of the provinces infrastructures, public projects, services, and active maintenance.
Conclusion
The tax and budget are directly proportionate to a country’s progress. They depend on a sustainable and effective budget policy that prioritizes adequate resources. Currently, they involve businesses, civil society, and stakeholders. The revenue generated by the tax policies implemented in the budget will be reutilized for the general public’s good.
Hence, an adequate budget promotes accountability and trust at the same time, assures that the needs and wants of the general community are prioritized.
