Karachi, January 26, 2024 – The Federal Board of Revenue (FBR) has implemented significant changes in the realm of property purchase, making it substantially more expensive for individuals not included in the Active Taxpayers List (ATL).
As per the updated Income Tax Ordinance of 2001 for the tax year 2024, non-ATL property buyers now face an advance income tax rate of 10.5 percent on the fair market value, a sharp contrast to the regular rate of three percent applicable to those listed in the ATL.
Section 236K of the Income Tax Ordinance, 2001, outlines the imposition of advance income tax on the acquisition of immovable property. The section mandates that any entity responsible for registering, recording, or attesting the transfer of immovable property must collect advance tax at the specified rate during the registration process. This provision encompasses a broad spectrum of entities, including local authorities, housing societies, co-operative societies, public and private real estate projects governed by law, joint ventures, and private commercial concerns, as well as registrars of properties.
The advance tax collected under this section is adjustable, except for non-resident individuals holding a Pakistan Origin Card (POC), National ID Card for Overseas Pakistanis (NICOP), or Computerized National ID Card (CNIC). In the case of such individuals who acquire immovable property through a Foreign Currency Value Account (FCVA) or NRP Rupee Value Account (NRVA) maintained with authorized banks in Pakistan, the tax collected is considered a final discharge of tax liability.
Furthermore, the legislation addresses the scenario where payments are collected in installments for the purchase or allotment of immovable property. In such cases, the entity collecting the installments must also collect advance tax at the specified rate during each installment. Importantly, if tax has been collected along with installments, no additional tax under this section shall be collected at the time of property transfer to the buyer from whom tax has already been collected in installments, provided it equals the amount payable under this section.
It’s worth noting that a crucial exception exists for schemes introduced by the Federal Government, Provincial Government, or an Authority established under Federal or Provincial law specifically designed for expatriate Pakistanis. However, the mode of payment by expatriate Pakistanis in these schemes must be in foreign exchange remitted from outside Pakistan through normal banking channels.
This move by the FBR is seen as a bold step towards encouraging individuals to become active taxpayers. Critics argue that while it may boost tax revenue, it could also have implications on the accessibility of property for a significant portion of the population. The real estate sector, already grappling with various challenges, now faces a new set of dynamics that may impact property transactions in the foreseeable future. As stakeholders analyze the potential ramifications, the FBR’s decision remains a focal point in the ongoing discourse on tax policies and economic measures in the country.
