Tax amnesty on property deals only covers FBR’s valued amount: Official

KARACHI: An amnesty granted on the sale and purchase of immovable properties would only cover amount valued by the tax officials, and any additional amount in such transactions, if not declared, would be considered as concealed income, a senior official said on Wednesday.

Rehmatullah Khan Wazir, Member Inland Revenue (Policy) at the Federal Board of Revenue (FBR) said the immunity from declaring source of investment in immovable properties was available only to amount prescribed by the FBR through valuation tables.

“Any higher amount, above the valuation, detected by the field formation of the FBR if undeclared, will be treated as a concealed income,” Wazir said.

The government, through a presidential ordinance, allowed immunity from Section 111 of Income Tax Ordinance, 2001 for the purpose of valuation of immovable properties and deduction of withholding tax.

The ordinance says source of investment will not be asked by the tax officials to the extent of valuation, prescribed by the FBR.

The member said the presidential ordinance was promulgated from July 31, 2016 therefore persons, making transactions in property business, would declare such deals in their income tax returns in August or September 2017.

Through the Finance Act, 2016, an amendment was introduced to the section 68 of the Income Tax Ordinance, 2001 which empowered the approved valuers of the State Bank of Pakistan (SBP) to assess fair market valuation for the purpose of calculating capital gain tax. The change was brought to realise huge amount of capital gain tax, which was not collectable due to low valuation of properties by the district collector of the provincial governments.

The FBR later notified valuation of immovable properties of major cities by issuing 16 SROs. The table shows the values prescribed by the FBR were still much lower to the fair market value. For example a plot in Karachi’s Defence Housing Authority is currently valued at around Rs50 million, but the FBR’s table shows it at Rs10 million. In such case, if a person makes a deal at Rs50 million, and declares Rs10 million then Rs40 million is his unexplained income, for which Section 111 will not apply.

The FBR, however, claimed that in the latest valuation table, about 50-60 percent valuation covered comparing fair market value.

However, the member said that the values would be gradually increased.

Tax experts said that FBR should clarify the quantum of amount to be available for the amnesty.

Ikramul Haq, a leading tax consultant, said a person would have margin of 40 percent against valuation prescribed by the FBR.  Therefore, the person can avail maximum benefit from law related to concealed income.

Syed Rehan Jafri, President, Karachi Tax Bar Association, said the law should be prospective and past transactions should be given immunity from declaring source of investment.  “In cases of capital loss in property transaction, it must be adjustable,” he added.