FBR slaps additional tax on filers under amnesty scheme for real estate sector

Penalising honest taxpayers

KARACHI: The Federal Board of Revenue (FBR), falling far short of revenue collection target this year, has imposed additional three percent tax on property transaction by honest taxpayers under an amnesty scheme that targets black money and evaders in the real estate sector, experts said on Saturday.

They added that the tax authorities have blurred a line between investors with disclosed and those having undisclosed sources of investment while asking them to pay a flat three percent on a property transaction.

The FBR, on 7 December, issued a circular for the implementation of amnesty scheme and withholding tax rates on property transactions.

The circular carried various property transaction scenarios. Three percent tax would be imposed along with different withholding tax rates on filers and non-filers of income returns. Three percent tax is imposed on the difference in value of FBR and provincial rates on all the transactions. There is no adjustment of this amount.

The circular is, however, silent over a person having declared sources of investment and who purchases a piece of land without paying the rate set for the amnesty scheme. A senior official at the FBR, however, said this is certainly not the FBR’s intention to force persons having known sources of money to pay the amnesty rates.

“Persons with investment from known sources should not be penalised,” the official said on condition not to be named. “The FBR will revisit the scheme.” Last month, the National Assembly passed the Income Tax (Amendment) Bill 2016 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 and actual cost of a property. And, that would be so only if a property is sold within five years.

The FBR, under the Finance Act 2016, set new property value tables, which are several times higher than the values fixed by provincial authorities. After the circular issuance, the taxpayers got confused about the implementation of tax rates on property transactions.

Tax experts said a person who buys a property with foreign remittances is also liable to pay three percent tax. “As foreign remittances are exempted from declaration of the source why should he be required to pay the tax rate,” said an expert.

Experts said a person can buy property through prize bond winning amount. He pays withholding tax on the amount. Similarly, a person who got retirement fund or savings can also invest fund into the real estate sector.

They said such persons should also not pay tax amnesty rate. The amnesty scheme has come under severe criticism as an enormous black money is involved in the property business.  Tax experts said the tax amnesty is unique in the country’s history.

Rehan Jafri, president of Karachi Tax Bar Association (KTBA) said any money whitening scheme is an injustice to genuine taxpayers. “The government has entangled people in different valuations,” Jafri said. “It is a government’s responsibility to bring forward uniform valuations.”

KTBA president said people with declared sources of investment should not be penalised as, “This will further promote informal economy.” He advised that the provincial registrars should register a property transaction according to the FBR valuation tables. “The registrar has the power to revise up the minimum value set by the provincial government,” he said. Tax lawyer Muhammad Zubair agreed. “People having clean money should not be made part of the amnesty scheme,” Zubair said.