Govt considers tax hike on property trading for non-filers

KARACHI: The government is likely to raise advance tax for non-filers of income tax returns on sale and purchase of properties to 10 percent in the budget 2019/20, sources said on Monday.

Presently, the advance tax is applicable at the rate of one percent and two percent on filers and non-filers of income tax returns, respectively on registering, recording or attesting transfer of immovable properties under Section 236C of Income Tax Ordinance, 2001. Advance tax on purchase of property is, however, zero percent if property value is up to four million rupees. For property value above Rs4 million, the advance tax on purchase of immovable properties is two percent for filers and 4 percent for non-filers under section 236K.

The sources said the government is considering the increase in advance tax on sale and purchase of properties up to 10 percent for non-filers.

The real estate sector is believed to be the primary parking lot of black money. People were involved in making money on sale and purchase of immovable properties without giving due share to the government in the shape of taxes, the sources said.

Advance tax rates would be applicable on valuations of immovable properties notified by the Federal Board of Revenue (FBR). A directorate general of immovable properties was established to detect tax evasion in sale and purchase of immovable properties in the last budget through the Finance Act 2018.

The sources said all work has been done to make the directorate operational. Once the FBR notifies to make the directorate functional the advance tax on sale of immovable properties would not be applicable. However, the advance tax on purchase of immovable properties would be reduced to one percent by abolishing existing rates under Section 236K.

Another Section 236W was introduced into the income tax law to give amnesty to buyers of immovable properties while exempting them from declaring source of investment for purchase of properties. The tax rate under the section is three percent. The section has to be abolished as soon as the directorate is functional.

The sources said the FBR might not make the directorate functional considering the difficult economic conditions and gigantic tax collection target for the next 2019/20 fiscal year.

The sources said the World Bank had advised the government to raise taxes on transaction of properties. The bank said low taxes on immovable properties are the major reason for tax evasion and money laundering.

The World Bank said substantial tax exemptions were given to real estate sector with properties below a certain size exempted regardless of location. Revenue was also lost due to unrealistically low valuations used for taxation purposes.

“The capital gains tax returns negligible receipts due to the zero rate applied to capital gains from the sale of immovable property after more than four years of ownership, and rates of 5-10 percent for properties sold after one to four years of ownership,” the World Bank said in a report on Pakistan revenue mobilisation program.

The sources said the federal government is finalising a formula with the provincial governments to increase the valuations for properties to bring them at par with fair market value. The FBR valuation would be omitted when the federal and provincial governments agree on upward revision in valuations.