The real estate sector in Pakistan is at a crucial juncture, facing significant challenges that are stifling its potential for growth and investment. As a leading real estate agency, Makani Marketing recognizes the urgent need for reforms that can rejuvenate this vital sector. Ahsan Zafar Bakhtawari, President of the Islamabad Chamber of Commerce and Industry (ICCI), has recently highlighted the necessity of repealing Section 7E of the Finance Act 2022 to stimulate investment and foster economic development. This blog delves into the impact of Section 7E on the real estate market and explores how tax relief could revitalize the sector.

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The Burden of Section 7E

Section 7E, introduced through the Finance Act 2022, has been a significant deterrent for potential investments in Pakistan’s real estate sector. This provision mandates the collection of deemed income tax, which has created substantial financial burdens for real estate developers, builders, and investors. Ahsan Zafar Bakhtawari has emphasized that this tax has hindered investment activities, ultimately affecting the overall economy.

Regional Disparities and Legal Challenges

Following a Lahore High Court ruling, the collection of deemed income tax under Section 7E has already ceased in Punjab. However, this repeal has not been extended nationwide, leading to regional disparities and continued challenges for investors in other parts of the country. Bakhtawari has called on the government to eliminate these disparities by extending the repeal of Section 7E across Pakistan.

The Case for Nationwide Repeal

The ICCI is vigorously advocating for the removal of Section 7E in the upcoming budget. This move, according to Bakhtawari, would facilitate the expansion of business and investment activities within the real estate and construction industry. By concentrating on these sectors, the government has the potential to steer Pakistan’s economy from recession towards sustainable development.

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Encouraging Foreign Investment

Sardar Tahir Mehmood, President of the Federation of Realtors Pakistan, has highlighted the importance of attracting foreign investment to the real estate sector. He noted that overseas Pakistanis prefer to invest in the country’s real estate market, but the increased tax burdens are discouraging these potential investments. By addressing the issue of high taxes and offering attractive incentives, the government can significantly boost foreign investment, providing crucial support to the fragile economy.

The Multiplier Effect on Allied Industries

The real estate and construction sectors are interdependent with numerous allied industries. Sardar Yasir Ilyas Khan, former President of ICCI and CEO of Centaurus, pointed out that reducing heavy taxes on the real estate sector could attract billions of dollars in foreign investments to Pakistan. This influx of capital could stimulate business activities across all allied industries, thereby invigorating the country’s economic growth.

The Role of Remittances and Foreign Investments

Khalid Iqbal Malik, ICCI Group Leader, stressed that the real estate sector serves as a major source for attracting remittances and foreign investments. However, the imposition of unnecessary taxes has led to a significant decline in both remittances and investments. Rationalizing taxes within this sector, withdrawing the tax on deemed income, and creating a conducive environment for investment are essential steps towards driving economic development in Pakistan.

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Potential Benefits of Tax Relief

Boosting Investor Confidence

Removing Section 7E and reducing the overall tax burden on the real estate sector would significantly boost investor confidence. With fewer financial constraints, developers and builders can undertake more projects, leading to increased activity in the market. This, in turn, would create more jobs and contribute to economic growth.

Attracting Overseas Pakistanis

Overseas Pakistanis have historically been significant contributors to the real estate market through remittances and direct investments. By offering tax relief and other incentives, the government can attract these investors back to the market, bringing much-needed foreign exchange and capital into the country.

Enhancing Economic Stability

A thriving real estate sector can contribute to broader economic stability. Increased investment in real estate leads to the development of infrastructure, which supports other industries and services. This creates a multiplier effect, boosting overall economic activity and growth.

Supporting Allied Industries

The construction and real estate sectors are closely linked with various allied industries, including cement, steel, and labor. By revitalizing the real estate market through tax relief, these allied industries would also benefit from increased demand, leading to more robust economic activity across multiple sectors.

Makani Marketing’s Perspective

At Makani Marketing, we understand the critical role that policy reforms and tax relief can play in revitalizing Pakistan’s real estate sector. Our experience in the market has shown that investor confidence is key to driving growth and development. By advocating for the repeal of Section 7E and other supportive measures, we aim to create a more favorable environment for real estate investments.

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Strategic Recommendations

1. Repeal Section 7E Nationwide: Extend the Lahore High Court’s ruling to the entire country to eliminate regional disparities and boost investor confidence.
2. Rationalize Taxes: Simplify and reduce the tax burden on real estate transactions to encourage more investments.
3. Offer Incentives for Foreign Investors: Provide attractive incentives for overseas Pakistanis and foreign investors to bring capital into the real estate market.
4. Support for Developers: Introduce subsidies and financial support for real estate developers to undertake new projects.
5. Promote Transparency: Ensure a transparent and fair regulatory framework to attract more investments and reduce the risk of corruption and manipulation.

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Conclusion

Pakistan’s real estate sector is at a critical crossroads. The introduction of Section 7E has significantly hampered investment, but there is a clear path forward. By repealing this tax and implementing strategic reforms, the government can stimulate investment and drive economic growth. At Makani Marketing, we are committed to supporting these efforts and helping our clients navigate the evolving landscape. With the right policies in place, Pakistan’s real estate market can once again become a vibrant and vital part of the economy, attracting both domestic and foreign investments and paving the way for sustainable development.

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