Tax Amnesty and Pakistan’s Improving International Reputation
KARACHI: On the 6th of December, the Federal government of Pakistan (FBR) approved a one-time tax amnesty scheme giving a unique chance to owners of real estate to make their immovable property good in the eyes of the tax man. But, what impact will this have on the country’s real estate market?
The main points of the recently approved tax amnesty are:
The buyer of the property will pay just 3% of the differential income (the difference between the value of the immovable property as determined by the FBR and the amount assessed by the deputy commissioner’s (DC) office). This formula only comes into play if the FBR value is higher than the DC’s appraisal.
Importantly, the amount invested in the immovable property will then be considered as clean money and will be accepted into the taxpayer’s book of accounts. In brief, it allows the tax avoider to benefit from a clean slate, taking a burden of guilt off their shoulders.
Following Indonesia’s lead
The tax amnesty in Indonesia was a great success. Many doubted that President Jack Widodo’s lofty target of US$ 12.5 billion was possible, but in the first phase ending in September, more than US$ 7 billion was collected. Many assets have returned from safe keeping in Singapore, and the real estate market has enjoyed an uplift in sales transactions.
Brazil (US$ 15.8 billion) and Argentina (US$ 90 billion) enjoyed positive amnesties in the past adding a significant contribution to tax takes in both countries. Importantly, it is not just about the short-term benefits for the government, but getting people into the tax system means the long-term tax income will also improve.
Foreign investors will look to Pakistan again
Already trade between China and Pakistan has increased in what commentators call China’s Marshal Plan. As Pakistan opens up to the world through the positive PR that CPEC has produced, the tax amnesty will enhance this reputation as a good place to do business. One of the main reasons an investor shies away from a country is an unstable tax environment: one that has too much black money and where ownership is not transparent.
International companies like Lamudi has made the move to Pakistan, and they hope to inject a level of trust into the real estate market with their online property platform. All their agents are professionally vetted to avoid potential scams or owners from the black market.
The tax amnesty will encourage overseas Pakistanis to declare their assets and start contributing again to the economy. Experts at Lamudi predict that once the big players start declaring their property, there will be a domino effect on the rest of the economy. Dubai—once a hotspot for overseas investment—is already feeling the pinch. Investment in Dubai is down by 42% in some cases according to Dawn.com. You will start to see these same investors turn their eye to Pakistan especially to Gwadar, and the renowned DHA housing projects.