The recently levied 0.3 percent withholding tax on non-filers of tax on all banking transactions, exceeding PKR 50,000 a day, is stalling real estate market activity, according to Pakistan’s best real estate website, Lamudi Pakistan (www.lamudi.pk).
The real estate sector of Pakistan had already been facing a slowdown in the first quarter of 2015 and with this newly imposed tax, which requires the property investors and brokers to pay 0.3 percent on every banking transaction above PKR 50,000, its growth is expected to decline further.
It negatively affects the profit margins of real estate investors, discouraging them from investing in this sector. It also promotes non-banking and cash transactions amongst the non-filers that gives rise to the informal sector in the economy and could lead to more fraudulent activities being carried out in the property market.
Saad Arshed, Country Director of Lamudi.pk, said: “This withholding tax will not only deter investment in the real estate sector but also contribute to inflation as the burden will be passed over to the homebuyers, who will have to pay higher prices at the time of purchases.
Pakistan is already facing a housing shortfall of nine million units and has a really low mortgage-to-GDP ratio of around 0.5 percent-imposition of such taxes stunt the real estate sector growth further.”
The government initially levied a 0.6 percent withholding tax, which after huge protests was decreased to 0.3 percent. However, the government should fully remove this tax to promote a formal and documented economy and do away with any illegal transactions in the real estate sector, Arshed said.