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7 MIN READ | June 01, 2024
The Finance Act of 2024 has brought significant changes to Pakistan's property tax landscape. One of the most noteworthy revisions is the removal of the holding period requirement for calculating capital gains tax on immovable properties. This change, outlined in an income tax circular by the Federal Board of Revenue (FBR), alters how gains from property sales will be taxed starting July 1, 2024. In this article, we’ll explore the implications of these new regulations, how they compare to the previous system, and what they mean for property owners and investors.
The Finance Act of 2024 introduces a host of amendments to Pakistan's tax laws, with a focus on simplifying and streamlining the taxation process. One of the key changes is the elimination of the holding period concept for property capital gains tax.
Previously, the tax rate on capital gains from property sales was determined based on how long the property had been held:
The holding period used to incentivize long-term investment in properties. Properties held longer would benefit from reduced tax rates, promoting stability in the real estate market.
Under the new regime, capital gains from the disposal of immovable property will be taxed at a flat rate of 15% for properties acquired on or after July 1, 2024. This change simplifies the tax calculation process and eliminates the need for investors to track how long they've held a property
For individuals and associations of persons (AOPs) not on the ATL, the minimum tax rate will not fall below 15%, ensuring a baseline rate for all taxpayers.
Properties acquired on or before June 30, 2024, will continue to be taxed based on the previous holding period regime. This ensures that investments made under the old rules are not unfairly penalized by the new regulations.
The removal of the holding period requirement aims to simplify the tax procedures, making it easier for property owners and investors to comply with tax regulations.
By standardizing the tax rate, the government hopes to encourage more investment in the real estate sector. The flat rate provides clarity and predictability for investors.
With the new tax rate, the distinction between short-term and long-term investments is removed. Investors will now face a uniform tax rate, which could impact investment strategies and property turnover.
Investors may need to adjust their financial planning and strategies to account for the flat tax rate, especially if they had previously optimized their investments based on the old holding period rules.
The Finance Act of 2024 introduces a flat 15% tax rate for properties acquired from July 1, 2024, removing the previous holding period requirement. This change simplifies tax calculations and encourages investment. Properties acquired before this date will still follow the old tax rules. Investors will need to adjust their strategies to adapt to these new regulations.