Tax collection from rental properties surges 26pc to Rs16bln in 10 months

KARACHI: The Federal Board of Revenue (FBR) has collected around Rs16 billion in tax revenue from rental properties during the first 10 months of the current 2018/19 fiscal year, up 26 percent year-on-year, as the authorities ensured collection on revised valuations, officials said on Friday.

The collection of income tax from rented properties amounted to Rs12.7 billion in the corresponding period of the last fiscal year.

FBR officials said the tax offices initiated monitoring of various businesses running on rented properties, including banks, private educational institutions, hospitals, and boutiques. The FBR issued valuation tables of immovable properties in 2016 and started monitoring of transactions of their sales and purchase.

Subsequently, the FBR discovered that a large number of propertied in urban areas were rented out and agreements were made on the lower values to evade taxes, an official said. The official said the FBR also increased the withholding tax rates for rented properties in line with the valuations to raise the revenue collection. As per the existing withholding tax rates, there is a threshold of Rs200,000 on which withholding income tax is not applicable.

The officials said there are, however, various categories of rental income on which withholding tax is applicable.

The tax rate on corporate unit in case of filer of returns is 15 percent and 17.5 percent for non-filers on the gross amount of rent. There are four categories other than companies and the FBR is collecting around Rs210,000 from them with additional 20 percent of the gross amount of annual rent exceeding Rs2 million.

The official said the monitoring of withholding tax also resulted in discovery of a large number of non-compliant taxpayers.

The official said under a law if an individual is deriving salary or business income then he should be required to mention the rental income separately for calculating annual income while filing his income tax return.

The official said the FBR also invoked penal provisions on the individuals who collect the tax on rented properties but fail to deposit the amount to the national kitty.

Under the Income Tax Ordinance 2001, if an individual fails to deposit the tax amount collected from rental property then he is liable to pay penalty of Rs25,000 or 10 percent of the amount of tax whichever is higher.

The business community previously urged the FBR to soften the tax rates on rental properties as such high rates result in increasing cost of production.

The apex trade body of the country urged the FBR to have different categories for their tax working/accounting purpose. “To be fair, the income is income and tax is payable on the income, and not on the category,” the Federation of Pakistan Chambers of Commerce and Industry said in a statement. “So, whichever category it falls, the tax slab should be the same as of AOP (association of persons) for all categories.”