ISLAMABAD: The Federal Board of Revenue (FBR) has decided to increase property assessment rates for various cities in the upcoming budget for 2019-20 to bring them up to par with market rates, The News has learned.
The tax authorities involved in the budget preparation process noted through official documents that the collection on the sale and purchase of goods remained almost stagnant during the outgoing budget year, given the data from the Sections 236C and 236K of the Income Tax Order 2001. is considering raising assessment rates but also scrapping withholding tax of 2% for filers and 4% for non-filers on the purchase of property worth more than Rs 4 million in the next budget.
Tax experts believe that real estate transactions have slowed in the outgoing fiscal year mainly for various reasons, including the imposition of a land purchase ban on non-filers for overseas Pakistanis, which was later withdrawn. But the differential assessment rates also created barriers for genuine buyers to undertake transactions that had resulted in reduced tax collection. The government is also considering increasing the tax rate on real estate capital gains and may increase the land holding period from 3 to 5 years for the collection of capital gains tax. Registration authorities are authorized to collect an advance tax under Section 236C from the seller of the property and an advance tax under Section 236K from the purchaser of the property. Thus, the tax on the capital gain from the sale of real estate must be paid by the taxpayer himself when filing the tax return. Under Section 236C, tax collection on the sale of immovable property stands at Rs4.8 billion so far in the outgoing fiscal year to May 2019 compared to Rs4.77 billion in during the same period of the last financial year 2017-18, registering a growth of only 1 percent. On the purchase of immovable property under 236K of the Income Tax Ordinance 2001, tax collection amounts to Rs11.49 billion from July to May 2018-19 against Rs11.9 billion during the same period of the last financial year 2017-18, witnessing a negative decline. 3% growth in revenue collection.
Now the FBR has come up with a strategy to increase the assessment table rates and reduce the tax rates. After raising rates on property valuation charts in various cities to bring them closer to market value, the IRS plans to cut tax rates in the next budget to revive sluggish economic activity and incentivize the wealthy to make real estate transactions. “We want to eliminate distortions in a way that encourages transactions as this is the way forward to maximize revenue collection in the next fiscal year,” the senior FBR official confirmed to The News here on Saturday.
When contacted by renowned tax expert and former member of FBR Shahid Hussain Asad, he said that investing in real estate was not a development investment. The government should set FBR-notified valuation rates close to the market rate and reduce the stamp duty to 1%. The CVT can be deleted. In this way, he suggested that the government could achieve major goals, including that people with only white money will invest in real estate, on the other hand, that the property will be registered at market value, even the reduction of stamp duty rate will increase the income of provincial governments, property rates will come down reasonably and the common man can also afford to build his own house and fourthly, more money will be invested in business and industry, which will create job opportunities and GDP growth. He said that since the return from the sale of real estate held for more than three years is exempt from capital gains tax, people would prefer to invest in this sector.
It is an open secret that a maximum amount of black money is parked in real estate. There are three types of real estate valuation.
(1) DC rate, which is used for stamp duty purposes and at this rate the property is registered with the property registration authorities.
(2) RBF rate; at which withholding tax is charged based on their “filer” and “non-filer” status, and FBR requires an explanation of sources at least to the extent of this assessment.
(3) The real market rate, which is generally 5 to 10 times higher than the DC rate and 2 to 4 times higher than the FBR rate.
Pakistan is perhaps the only such example to have three types of property valuation. Since property can be registered and held at a value well below market rate, this results in maximum wealth parking in this area. Even people who do not have a lot of business know-how find it easy and safe to invest in real estate, as this investment is usually easy, safe and generates substantial profits, Shahid Hussain Asad added. . However, he said that the lower DC rate or even the FBR rates if they help an investor account for a lower amount of funds in a high value property, also cause a problem, when one sells his property in the market free and that the recorded value is much lower than what he actually receives.
In this way, untaxed, black money is created in his hands. To justify the acquisition of this wealth and save oneself from taxation under Section 111 of the Income Tax Order 2001, recourse must be had to the purchase on certain premiums, certificates collection of foreign remittances or avail of amnesty programs issued by the government from time to time. time, he concludes.