New Tax Regimen - Govt discouraging Interest income and Real Estate Investment

[ps3linux]

Last day someone requested me to provide him a comparison of previous and current Tax regimen for profit on debt and real estate investment and wanted my advise to make his investments tax efficient, mind you the gentleman has a fixed income portfolio which exceeds PKR. 3 billion in liquid investments so I went through the new Tax laws and drew up the following comparative chart:

To me it seems like the Govt has decided to discourage investments which do not benefit the country in terms of job creation, bank deposits in Pakistani Banks which are flushed with cash is definitely not beneficial for the economy and real estate investment the way it was being done in Pakistan is definitely an anti-industrialization policy, which is now fixed to some extent. Just read that property DC rates are now almost 85% of market value, nutshell I am very happy to see this new tax regimen as it will discourage so called "investors"

Another important point is that the profit on debt rates are for filers, for non-filers the rates are now double. Besides it is my understanding that Banking Companies are now required to report to FBR if any one person's profit on debt exceeds per annum.

 

[Yaseen1]

i think govt should decrease interest rates if they are serious in discouraging investment in banking,increasing taxes with increase in interest rates will have negative impact as due to high interest lending for new businesses startups will be very difficult so this objective of govt will never be achieved although they increase tax rates.Such policy will only lead may banks to default and end operations
Taxes on real estate may not be effective,as most of some investment are long term and investors will keep houses/lands for 4 to 8 yrs and then sold them in the form of lease to avoid taxes .In order to discourage usage of agricultural land in to real estate govt should make laws at local govt level that construction is not allowed in such areas where land is feasible for agriculture and if anyone does this he should be fined heavily and houses should be bulldozed immediately by govt authorities

 

[zulu]

Nice more changes on the cards will update you also check @The Accountant posts he did some very good ones few days ago.Hope some more about stock markets too

 

[Sugarcane]

The way property investment is being done in Pakistan, that's surely is disastrous. Fertile lands are being converted into housing schemes where people buy plots and forget about it for years, so the land which was producing crops will stay idle for years. But property business is also important part of economy, in my opinion government did right thing by discouraging investment in plots but it should encourage vertical expansion and there should be less tax on apartments (perhaps zero tax if apartment building is built by replacing existing houses, have enough parking, and fulfill safety requirements) - this way property business will automatically move towards vertical expansions instead of villas.

 

[Imran Khan]

I am.scared people will but dollars now because they can not buy realestate

 

[Samlee]

If An Agreement Reaches With TCC and And FDI Of $6 Billion Comes Plus If The Recessionary Impact Of Trade Wars and No Deals Brexit Affect Oil Pries The Deflationary Impact Can Very Much Lead To Lowering Of Interest Rates

 

[ziaulislam]

i think govt should decrease interest rates if they are serious in discouraging investment in banking,increasing taxes with increase in interest rates will have negative impact as due to high interest lending for new businesses startups will be very difficult so this objective of govt will never be achieved although they increase tax rates.Such policy will only lead may banks to default and end operations
Taxes on real estate may not be effective,as most of some investment are long term and investors will keep houses/lands for 4 to 8 yrs and then sold them in the form of lease to avoid taxes .In order to discourage usage of agricultural land in to real estate govt should make laws at local govt level that construction is not allowed in such areas where land is feasible for agriculture and if anyone does this he should be fined heavily and houses should be bulldozed immediately by govt authorities

seems you have nbo proactical experience in pakistan..

sir the problem is not interest rate..the problem is capital in pakistan..ask any major investor..the cant find capital why?

because we low interest rates comes low saving which dwindled down to half of what banglesh has now ( this year the deposits in national saving increased from 400b to 900 billion) which mean there is nothing to left over to lend anyway, all the money ends up with the govt(taking out all the available money in form of govt loans)..any bank will be stupid to lend a high risk private investor if govt is going to keep interest rates low..

thus the poor policies of keeping artificial low interest led to destruction of our SMEs while higher interest rates flourished the SMEs in india, Bangladesh..because of more captal...real interest rate= interest-infaltion..you cant run inflation high and keep interest low

so if it is that bad, than why did Ishaq dar did this??

its called "Darian economy" a simple but ingenious way for 5 years successful tenure..you want the govt to have more money for more spending , f*** the private sector and long term consequences, what you do is you drop interest rate by force (tell the central bank or make him resign) this leads to two things, 1st your interest payment drops (govt is paying 3000 b interest for same loan which PMLN paid 2000b, as interest goes up from 5 to 13%) second rupees overvalues (real effective rate) and inflation drops....everyone is happy..but for only 5 years untill you end with shock after 5 years.. as the deficit you run is financed by foreign liquidity

just like when you bringing and eating chickens on loan money everyone is happy untill you run out of credit and have to sell your house

 

[Yaseen1]

japan has very low interest rates but its economy is much better than india and bangladesh.High interest rates will increase gap between rich and poor as happening in india.India is not ideal for us to follow as they have high poverty and are artificial strong economy.The problem here is that govt has also increased tax on interest income to discourage saving account deposits so it would be much better if govt does this by lowering interest rates as it would promote more business and make investment easy for new startups and people will be encouraged to start their own business which will result in to more employment and increase in exports if govt promote financial instruments for making investment in new industrial undertakings based on profit sharing instead of based on interests which only help banks and discourage industry.When interest rates are low people will buy stocks of public companies and it will help companies to raise more capital and expand operations which will promote many private companies to get listed on stock exchange and raise capital which will increase export and employment and also increase foreign investment.There is a reason why interest is unIslamic.Unequal risk sharing is major problem for promotion of business activity.Govt should promote Islamic banking which involves profit sharing and risk sharing between bank and private business entrepreneurs

seems you have nbo proactical experience in pakistan..

sir the problem is not interest rate..the problem is capital in pakistan..ask any major investor..the cant find capital why?

because we low interest rates comes low saving which dwindled down to half of what banglesh has now ( this year the deposits in national saving increased from 400b to 900 billion) which mean there is nothing to left over to lend anyway, all the money ends up with the govt(taking out all the available money in form of govt loans)..any bank will be stupid to lend a high risk private investor if govt is going to keep interest rates low..

thus the poor policies of keeping artificial low interest led to destruction of our SMEs while higher interest rates flourished the SMEs in india, Bangladesh..because of more captal...real interest rate= interest-infaltion..you cant run inflation high and keep interest low

so if it is that bad, than why did Ishaq dar did this??

its called "Darian economy" a simple but ingenious way for 5 years successful tenure..you want the govt to have more money for more spending , f*** the private sector and long term consequences, what you do is you drop interest rate by force (tell the central bank or make him resign) this leads to two things, 1st your interest payment drops (govt is paying 3000 b interest for same loan which PMLN paid 2000b, as interest goes up from 5 to 13%) second rupees overvalues (real effective rate) and inflation drops....everyone is happy..but for only 5 years untill you end with shock after 5 years.. as the deficit you run is financed by foreign liquidity

just like when you bringing and eating chickens on loan money everyone is happy untill you run out of credit and have to sell your house

 

[ziaulislam]

japan has very low interest rates but its economy is much better than india and bangladesh.High interest rates will increase gap between rich and poor as happening in india.India is not ideal for us to follow as they have high poverty and are artificial strong economy.The problem here is that govt has also increased tax on interest income to discourage saving account deposits so it would be much better if govt does this by lowering interest rates as it would promote more business and make investment easy for new startups and people will be encouraged to start their own business which will result in to more employment and increase in exports if govt promote financial instruments for making investment in new industrial undertakings based on profit sharing instead of based on interests which only help banks and discourage industry.When interest rates are low people will buy stocks of public companies and it will help companies to raise more capital and expand operations which will promote many private companies to get listed on stock exchange and raise capital which will increase export and employment and also increase foreign investment.There is a reason why interest is unIslamic.Unequal risk sharing is major problem for promotion of business activity.Govt should promote Islamic banking which involves profit sharing and risk sharing between bank and private business entrepreneurs

japan also is a developed country ? since when do we have the credit rating, manufacturing and technology of japan..
hell japan can even work with 0% interest due to its credit rating and developed nation status

you are wrong when interest rates are low, people stop saving and money goes into long term bottle neck investments like real estate..we saw this yourself our savings dropped from 30% to 15% in last 10 years effectively killing our SMEs

there i no tax on savings you are wrong, its a WITHHOLDING TAX on drawing money..withholding tax is not a tax for fillers

low interest rates are sometimes used as short term policy measure too stimulate growth which china and USA effectively did, but this for countries with huge saving base to begin with

PS:
interest is unislamic should be abolished and chnaged with islamic system of loan for investment ..i was just commenting on low vs high interest rates effect on economy..its simple 101 of economy..

 

[The Accountant]

Last day someone requested me to provide him a comparison of previous and current Tax regimen for profit on debt and real estate investment and wanted my advise to make his investments tax efficient, mind you the gentleman has a fixed income portfolio which exceeds PKR. 3 billion in liquid investments so I went through the new Tax laws and drew up the following comparative chart:

View attachment 570637
To me it seems like the Govt has decided to discourage investments which do not benefit the country in terms of job creation, bank deposits in Pakistani Banks which are flushed with cash is definitely not beneficial for the economy and real estate investment the way it was being done in Pakistan is definitely an anti-industrialization policy, which is now fixed to some extent. Just read that property DC rates are now almost 85% of market value, nutshell I am very happy to see this new tax regimen as it will discourage so called "investors"

Another important point is that the profit on debt rates are for filers, for non-filers the rates are now double. Besides it is my understanding that Banking Companies are now required to report to FBR if any one person's profit on debt exceeds per annum.

I am little busy right now. Will definitely share my views on this.

regards,

 

[Yaseen1]

you should read history of jews ,they lend money to others on high interest rates but used to take loan without inerests as they knew its negative impact on those who take loan on interests

japan also is a developed country ? since when do we have the credit rating, manufacturing and technology of japan..
hell japan can even work with 0% interest due to its credit rating and developed nation status

you are wrong when interest rates are low, people stop saving and money goes into long term bottle neck investments like real estate..we saw this yourself our savings dropped from 30% to 15% in last 10 years effectively killing our SMEs

there i no tax on savings you are wrong, its a WITHHOLDING TAX on drawing money..withholding tax is not a tax for fillers

low interest rates are sometimes used as short term policy measure too stimulate growth which china and USA effectively did, but this for countries with huge saving base to begin with

PS:
interest is unislamic should be abolished and chnaged with islamic system of loan for investment ..i was just commenting on low vs high interest rates effect on economy..its simple 101 of economy..

 

[ps3linux]

i think govt should decrease interest rates if they are serious in discouraging investment in banking,increasing taxes with increase in interest rates will have negative impact as due to high interest lending for new businesses startups will be very difficult so this objective of govt will never be achieved although they increase tax rates.Such policy will only lead may banks to default and end operations
Taxes on real estate may not be effective,as most of some investment are long term and investors will keep houses/lands for 4 to 8 yrs and then sold them in the form of lease to avoid taxes .In order to discourage usage of agricultural land in to real estate govt should make laws at local govt level that construction is not allowed in such areas where land is feasible for agriculture and if anyone does this he should be fined heavily and houses should be bulldozed immediately by govt authorities

I personally have always disagreed with this IMF model of curtailing growth and inflation through interest rate hike, it has its own problems but as they say "beggars are not choosers" so till the time new measures take effect, there is industrialization in the country we have to go by IMF dictations.

Nice more changes on the cards will update you also check @The Accountant posts he did some very good ones few days ago.Hope some more about stock markets too

Yaar This is not the complete table I worked out for the gentleman, there was more but I omitted the rest deliberately so that people shouldn't get any ideas that I am trying to press in my agenda. If you want I can send it to you privately. BTW NSS issued a memo F.No 13(1)(Rules)Sch-3/2004 Vol II dated July 8, 2019 its very interesting to read and interpret, investors are in deep s*. Besides starting too many threads is a headache for me, I am still having terrible actual headache and jet lag effects.

The way property investment is being done in Pakistan, that's surely is disastrous. Fertile lands are being converted into housing schemes where people buy plots and forget about it for years, so the land which was producing crops will stay idle for years. But property business is also important part of economy, in my opinion government did right thing by discouraging investment in plots but it should encourage vertical expansion and there should be less tax on apartments (perhaps zero tax if apartment building is built by replacing existing houses, have enough parking, and fulfill safety requirements) - this way property business will automatically move towards vertical expansions instead of villas.

I agree property business is important for the economy but there must be a check on how many properties one person can own, and what is the source of money for property acquisition we still are weak in that area. I am a proponent of US Tax laws for Real Estate.

I am.scared people will but dollars now because they can not buy realestate

That sir is the flip side, but once things stabilize and PKR start moving towards equilibrium price means around 150 speculators will run away. Metals are my specialty so I don't find gold/silver/platinum and even crypto currency as suitable investment vehicle. What will happen is that people will either go to equity market, mutual funds or start doing business each case it will benefit the economy.

If An Agreement Reaches With TCC and And FDI Of $6 Billion Comes Plus If The Recessionary Impact Of Trade Wars and No Deals Brexit Affect Oil Pries The Deflationary Impact Can Very Much Lead To Lowering Of Interest Rates

If the Govt can renegotiate an agreement with solid minimum guaranteed payments by TCC to GoP with firm Royalties it will benefit Pakistan, otherwise phhh.

 

[Baz]

There is 0 innovation in pakistan in any industry. Hence people resort to buying real estate. The world has moved on. Please move along with it. FFS

 

[ps3linux]

More on new Tax measures

 

[Verve]

Last day someone requested me to provide him a comparison of previous and current Tax regimen for profit on debt and real estate investment and wanted my advise to make his investments tax efficient, mind you the gentleman has a fixed income portfolio which exceeds PKR. 3 billion in liquid investments so I went through the new Tax laws and drew up the following comparative chart:

View attachment 570637
To me it seems like the Govt has decided to discourage investments which do not benefit the country in terms of job creation, bank deposits in Pakistani Banks which are flushed with cash is definitely not beneficial for the economy and real estate investment the way it was being done in Pakistan is definitely an anti-industrialization policy, which is now fixed to some extent. Just read that property DC rates are now almost 85% of market value, nutshell I am very happy to see this new tax regimen as it will discourage so called "investors"

Another important point is that the profit on debt rates are for filers, for non-filers the rates are now double. Besides it is my understanding that Banking Companies are now required to report to FBR if any one person's profit on debt exceeds per annum.

View attachment 570649
More on new Tax measures

Sir, these look fine to me. This is geared to long term investments and taxes those who are in for quick in and out (short term) gains.

In UK a person has to hold the house minimum 2 years for personal use to be exempt from Capital Gains Tax. Even rented properties need to be brought back in for personal only use for 2 years.

Sole trader property Investors can pay up to 40% CGT on investment property, depending on what income tax bracket they fall under.

A few years back under new legislation now a sole trader property investor can't even deduct interest expense! But this exemption has now been given to Limited Companies so people are forced to pay higher taxes or operate their businesses differently for lower taxes. Limited company have annual filing so HMRC has a better visibility.

New rules in Pakistan are about changing the dynamics of investments to stop volatility in the markets. Investors will adopt sooner rather than later.