Amnesty scheme for real estate sector

‘Non-filer property buyer ought to pay 7 percent tax’

KARACHI: A property buyer has to pay an additional withholding tax rate of four percent besides three percent on a transaction if s/he fails to file returns, officials said on Thursday. 

The tax officials said withholding tax on a property transaction is two percent if a buyer is an income tax return filer and otherwise four percent.  “So, a non-filer will pay seven percent on a property transaction,” a senior official said on condition of anonymity. The National Assembly passed the Income Tax (Amendment) Bill 2016 on Wednesday to bring undisclosed property investments into the mainstream on certain tax payment.

Under the law, an investor needs to pay three percent tax 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. 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. ”The source of investment will not be asked up to the value notified by the FBR,” the official said. “If a transaction is made beyond the FBR values and not declared in the books of account then the tax authorities would ask the source even on the actual buying amount.”

The official said the FBR is not in favour of giving any tax relaxation to property business, “but there was pressure from the various quarters that a window should be opened for persons stuck in two different valuations.” 

“Capital gain tax will be applicable as per the approved law,” he added. The law has given no time limit and is similar to the amnesty granted to foreign remittances where such transfers are exempted from questioning of source. 

The FBR official said amendments will be introduced in the Income Tax Ordinance, 2001 in the upcoming budget to define a timeline. The official said the person made property transactions during the tax year 2016 could now file their income tax returns. The government gave another 15-day extension in the deadline of returns filing.