A new tax law has been sanctioned regarding the real estate sector in Pakistan – something that’s perhaps the best development of the talks held between the Finance Minister Ishaq Dar, real estate representatives, and Federal Board of Revenue’s senior officials – plots originally allotted to the families of martyred officers of armed forces will be exempted from Withholding and Capital Gain Tax (CGT) on first sale.
Furthermore, provincial and federal Civil Services officers, employees of the Police Department, original plot allottees from armed forces and overseas Pakistanis will only be required to pay half the usual CGT. Does this mean that these folks will pay CGT at 5% instead of 10% if they sell property in first year of its purchase, 3.75% if they sell it in the second year and 2.5% if they sell it in the third year? I hope that CGT slabs work in a similar manner for them, but of course, at a 50% lower rate. Nonetheless, further clarity is needed.
According to news reports published in national dailies today, President Mamnoon Hussain has approved the second amendment in the Income Tax Ordinance 2001, which is to be effective right away. Initially, this amendment stands functional for 4 months, during which the Finance Minister Ishaq Dar will present the Presidential Ordinance Bill in the Senate and National Assembly. Per the news reports, as this is essentially a money bill, Senate will send its recommendations to the National Assembly in 14 days. Bear in mind that the bill will be passed once the National Assembly formally approves it.
The report also reads that property valuation mechanism earlier proposed by FBR, which suggested to carry out real estate valuation through valuers appointed by State Bank of Pakistan, was turned down by the Government of Pakistan. Instead, FBR has been given the task of determining the new Deputy Commissioner (DC) rate. Moreover, to determine new DC rate, which will be in effect from August 1, 2016, FBR will work in cooperation with representatives from the real estate sector and Federation of Pakistan Chambers of Commerce and Industry.
In this regard, FBR will initially determine the new DC rate in Islamabad, Karachi, Lahore, Peshawar, Gwadar, Quetta, Rawalpindi, Multan, Faisalabad, Gujranwala, Bahawalpur, Hyderabad, Sakhar, Rahim Yar Khan, Gujrat, Sialkot, Jhelum, Sargodha, Jhang, Mardan and Abbotabad. For property valuation in other cities, FBR will continue with assessment as and when needed.
As far as the difference in the rate of Withholding Tax applicable on tax filers and non-filers is concerned, there hasn’t been any change from what was earlier announced in the Budget 2016-17. When selling property, the filer will pay Withholding Tax of 1% of the property value determined by the FBR while the percentage set for non-filer is 2%. In case of property purchase, the percentage of Withholding Tax is 2% and 4% respectively for the filers and non-filers.
It is important to mention here that, per the news details, the second amendment issued by the president in Income Tax Ordinance 2001 does not include any amnesty scheme. So now we know for sure that no amnesty has been announced for the real estate sector so far.