KARACHI: The Federal Board of Revenue will implement the new withholding tax rate on immovable properties for the year 2019 after directorate general becomes operational, sources said on Saturday.
However, the restriction on non-filers of income tax returns on purchase of immovable properties above Rs5 million has been imposed from July 1, 2018, they added.
Through the Finance Act, 2018, the government brought certain changes in the regime of tax on transaction of immovable properties. The significant change was restriction on non-filers for purchase of immovable properties above Rs5 million. The other change was enforcement of transactions at fair market value and imposition of withholding tax rate at one percent to be payable by both buyer and seller.
The second condition was subject to establishment of directorate general immovable properties and tribunal of immovable property, which was to be notified by the federal government.
The sources said withholding tax rates under Section 236C and 236K of the Income Tax Ordinance, 2001 and valuation of immovable properties notified by the revenue board will remain applicable in the tax year 2019 till the directorate becomes functional.
In July 2016, the FBR had issued valuation of immovable properties located in around 20 major cities of the country to enhance the declared value and generate sizeable revenue. However, due to the prevalence of lower deputy collector rates in provinces, the FBR was able to generate revenue, but failed to enhance the number of return filers.
The applicable rates of withholding tax on transactions of immovable properties are one percent by filer and two percent by non-filer in case of seller; and on value of immovable property above Rs4 million, the rate of 2 percent for filer and 4 percent for non-filer in case of buyer.
In his speech for the budget 2018/19, the then finance minister announced amendments and advised the provincial governments to fix the stamp duty rate at one percent on the fair market value. However, the provinces had not announced to withdraw the collector rates.
Industry experts said such a situation may create difficulties for the buyers and sellers of immovable properties as proposed directorate may forcefully purchase where it found the values were suppressed.
The federal government through the Finance Act, 2018 granted immense powers to the directorate general of the proposed directorate under which the DG besides acquiring the immovable property also refers cases to tax departments for concealment of assets.