Federal Board of Revenue (FBR) is planning to increase capital gains tax (CGT) rates and period on immovable properties in order to discourage short-term buying and selling.
FBR sources told PkRevenue.com that a committee comprising senior officers of Inland Revenue Service (IRS) has been constituted for working on existing CGT rates and tenure and suggesting raise in both rates and retention period.
The sources said that the plan to raise the tax on immovable properties is part of preventing this industry from parking lot of black money besides also discouraging the property to trade as commodity.
They said that the purpose of the enhancing tax on immovable properties was to divert investment towards other sectors of the economy for growth.
The FBR amended the retention period of immovable properties through Finance Act, 2022.
The revenue body stated that earlier, the gain arising on the disposal of immovable property after the holding period of 4 years was exempt from tax. Now the holding period concession will separately apply which for open plots is six years, for constructed property is four years and for flats is two years.
Further, whole amount of gain on disposal of immovable property will be taxable at graduated rates provided in Division VIII of Part I of First Schedule of the Ordinance given as under:
|Where the holding period does not exceed one year
|Where the holding period exceeds one year but does not exceed two years
|Where the holding period exceeds two years but does not exceed three years
|Where the holding period exceeds three years but does not exceed four years
|Where the holding period exceeds four years but does not exceed five years
|Where the holding period exceeds five years but does not exceed six years
|Where the holding period exceeds six years
It further explained that the concessional taxation regime for capital gains has been made applicable only to disposal of immovable properties situated in Pakistan.
The benefit of holding period and concessional rate of tax is not available in respect of capital gains arising on disposal of immoveable property situated outside Pakistan.
Furthermore, to streamline capital gains taxation regime, the concessions earlier available under sub-sections (3) and (3A) of section 37 in terms of reduction in capital gain by certain percentages on disposal of capital assets held for more than one year has been withdrawn.
Sub-section (4A) of section 37 has been omitted. Accordingly, non-recognition provision of section 79 will apply to determine the cost of acquisition on transfer of capital asset under the circumstances contained therein.
It is worth mentioning that the FBR has also constituted another committee to review the valuations of immovable properties in the major cities, which would be applicable from new fiscal year.
Tax experts, however, said that in the challenging economic conditions and high inflation and imposition of multiple taxes had already brought down the prices of immovable properties. They said that enhancing valuation of immovable properties would not be a wise decision.
For the ongoing fiscal year, the government has taken measures by imposing deemed income and capital value tax on immovable properties. The deemed income under Section 7E adversely affected real estate market.
Shafi Jakvani, the Vice President of the Karachi Defence and Clifton Association of Real Estate Agents, said that the government’s policies have aggravated the investment scenario, adding that the heavy taxes on the property industry need to be reviewed to attract investment, given the already-declining prices of immovable properties.
Jakvani emphasized that the present political and economic situation is already discouraging investors, and the indefinite extension of the time for capital gain tax is not correct. He also mentioned that the government has imposed wealth tax in the shape of fixed tax.
He urged the government to review the heavy taxes on the property industry in order to attract investment as prices of immovable properties have already fallen by 15 per cent in the first three months of the year 2023.