Karachi, July 31, 2024 –The Federal Board of Revenue (FBR) has eliminated the holding period concept for immovable properties acquired on or after July 1, 2024. This change marks a substantial shift in the taxation of real estate transactions within Pakistan.
As per the Finance Act, 2024, capital gains arising from the disposal of immovable property within Pakistan will now be subject to a flat tax rate. Previously, the tax rate on capital gains varied based on the property’s holding period, with different rates applicable depending on how long the property was held before being sold. This created a complex structure that often led to confusion among taxpayers and required meticulous record-keeping to ensure compliance, according to Circular No. 1 of 2024-25 issued by the FBR.
Under the new rules, the FBR said individuals and associations of persons (AOPs) appearing on the Active Taxpayers List (ATL) at the time of property disposal will be taxed at a 15% rate. Those not on the ATL will be subject to higher rates specified in the First Schedule. However, the minimum tax rate for individuals and AOPs has been set at 15%. This uniformity in tax rates aims to streamline the process and make it easier for taxpayers to calculate their liabilities.
For properties acquired before July 1, 2024, the existing holding period-based tax structure will continue to apply. This means that any capital gains realized from these properties will still be taxed based on the duration for which the property was held, maintaining the old regime for those investments.
The FBR’s decision is expected to simplify tax calculations for property transactions while potentially increasing government revenue. By removing the holding period concept, the FBR aims to reduce administrative burdens and encourage more transparent and straightforward real estate dealings.
However, the impact on the real estate market remains to be seen. Some experts believe that the flat tax rate could stimulate property transactions, as sellers would no longer be incentivized to hold onto properties for extended periods to benefit from lower tax rates. This could lead to increased liquidity in the market, potentially driving up real estate activity.
On the other hand, there are concerns about how this change might affect property values. A flat tax rate, regardless of the holding period, might lead to short-term fluctuations in property prices as the market adjusts to the new regime. Additionally, investors who previously relied on long-term holding strategies to minimize their tax liabilities may need to reassess their investment approaches.
The FBR’s move is seen as part of broader efforts to reform Pakistan’s tax system, making it more efficient and taxpayer-friendly. As the country navigates these changes, stakeholders in the real estate sector will be closely monitoring the effects on market dynamics and overall economic activity.