Govt snubs tax amnesty for real estate sector

KARACHI: The government on Thursday ruled out a possibility of granting any tax amnesty to the real estate investors.

“The government is against any amnesty,” Haroon Akhtar, special assistant to Prime Minister on revenue told tax officials during a visit to Large Taxpayers Unit, Karachi.  The problem of black economy in Pakistan is pernicious and transactions that take place outside formal channels amounts to around 20 percent of the country’s annual $250 billion gross domestic product.

However, the industry officials said the government is weighing various proposals regarding tax amnesty forwarded by the realtors and lawmakers to bring undisclosed property investments into the tax net. 

It was proposed that an investor might pay two to three percent taxes on the amount of difference between declared cost and actual cost. And, that would be so only if a property is sold within five years. Another proposal suggested a three percent fixed tax on amount of difference between collector and market values on property sale every time.

The Federal Board of Revenue (FBR), under the Finance Act, 2016, set new market-based property values, which are several times higher than the values fixed by provincial authorities. The valuations are for the purpose of capital gains tax deduction and implemented from July 31.

However new mechanism created a furor in the property sector where, analysts estimate billions of rupees of untaxed investment or black money is parked. The tax machinery, despite new valuation tables, failed to increase capital gains tax collection from property sellers. In first four months of the current fiscal year of 2016/17, the FBR fell short of its revenue target. 

The PM's advisor said the revenue shortfall in the first four months was due to soft oil prices, agriculture sector’s incentives and zero-rating for export sector. “Tax machinery is trying its best to achieve Rs3,621 billion set as the target of the current fiscal year,” he commended. 

Industry officials said investors who made transactions on the basis of undervalued deputy collector tables before the FBR’s new measure are also hesitant to declare their assets.  “In order to resolve this, the standing committee of National Assembly on finance is considering different proposals,” Akhtar said. The government had also constituted a sub-committee to address the genuine grievances.

All the previous amnesty schemes failed to significantly widen the tax base and limit black money. Currently, less than one percent of the country’s population pays taxes, while tax-to-GDP ratio has stagnated at 10 percent for the past few years.

The government is not considering any new tax to meet the revenue collection target. Industrial activities and corporate profitability, led by an ease in oil prices, will give a boost to revenue collection, analysts said.

Akhtar said not all offshore companies are illegal. “Those which transfer money abroad without paying taxes commit tax evasion.” 

“We have sought proposals from business community to frame rules on offshore investment,” he added.