New budget 2014-15 have brought new additional charges for the real estate industry. The main stakeholders who largely include property dealers are already opposing the new taxes and charges. They have made various protests. But the fact remains that the new taxes have been implemented effective from 1st July, 2014.
We present the brief summary below:
There are mainly three government taxes on the real estate transactions in the form of CVT, Stamp duty and Advance tax (Capital Gains Tax)
Stamp duty increased to 3% from 2%. CVT duty remains the same at 2%. Advance tax increased to 1% from 0.5%.
DC Value has increased from 30 to 80% in different areas of Lahore.
What is DC Value?
DC value (Declared Value) is the base value of the land fixed by the government. Usually the DC value remains less than the half of the market value of any plot. This has now increased closing the big gap and moving closer to the market value. It is to be noted that all taxes are calculated not on the market value but on the DC value of the land e.g. The market value of the one marla in phase VI of DHA Lahore is appx Rs.600,000. The old DC value (before July 2014) was Rs.125000, and now it has increased to Rs.225000. So apparently, DC value in this case increased about 80% in this budget, but on the other side, it is still much less than the market value (Rs. 600,000).
Since taxes are calculated on DC value, certainly the overall total amount has increased in real estate buying and selling from the previous year. Buyer now has to pay more to buy the land.
Advance tax (CGT) is on the seller side, whereas all the other taxes are on the buyer’s side. It is to be noted that the transfer charges are different from the above mentioned government taxes. These vary from housing scheme to scheme, which are considered internal and this income goes to that housing society’s pocket (not to govt) e.g. in DHA the transfer charges ranges from 23000 onwards.
With this increase in taxes, few more months (from July to Dec 2014) will show what impact it will have on the real estate market. Apparently, it will discourage the investors and speculators to buy for short term and earn quick profits. The procedure for buying and selling has also been tightened at the initial stage which now requires to buy a Rs: 1200 stamp paper for earnest money transaction (Biana papers), which will now bound the buyer and seller to go through the agreed transaction. Earlier it was Rs: 100 stamp paper Biana, and also had the flexibility to remain open ended, which had resulted to forward sell the same property to third and fourth buyer. This practice will also get discouraged to some extent. And real estate dealers, investors and speculators will be affected mostly who always took advantage of this
However, as far as the end buyer or consumer is concerned, with some additional charges, it brings more safeguards for transfer of property.
The impact will be settled in the next 6 months till Dec 2014, which will clearly determine the direction of real estate industry and its growth.