KARACHI: Karachi Tax Bar Association (KTBA) has proposed up to 20 per cent capital gain tax on real estate with elimination of all exemption and concessions.
The KTBA in its proposals for budget 2022/2023 suggested the Federal Board of Revenue (FBR) to impose aggressive rate of tax on real estate sector. In this regard the tax bar recommended amendment to Section 37(1A) of Income Tax Ordinance, 2001. It said that the amendment is necessary as the existing law lacks composite framework for taxation of real estate sector.
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The KTBA said that taxation on trading of real estate in Pakistan has either been symbolic or otherwise was avoided purposely. Consequently, trading in the real-estate sector is the single largest factor to create huge informal economy viz.a.viz a heaven to evade taxes in Pakistan. “Other detrimental consequences of this scenario are money laundering and terror financing. International donors/regulators have time and again suggested steps to improve the situation.”
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It proposed that a new head of income in Section 11 of Income Tax Ordinance 2001 should be added as income from disposal and trading of real estate containing progressive taxation, without allowing any exemption as to holding period and quantum of gain:
Where holding period is two years the rate of tax on gain should be 20 per cent
Where holding period is five years the rate of tax on gain should be 17.50 per cent
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Where holding period is ten years the rate of tax on gain should be 15 per cent
Where holding period is more than ten years the tax on gain should be 10 per cent
The tax bar further proposed a separate definition of income from disposal and trading of real estate.
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Other regulatory amendments recommended by the tax bar are included: Restriction of individual holding of real estate properties [save Single member company]- Transfer of Properties Act 1882 to be amended; A separate ‘Real Estate Regulatory Authority’ is suggested; Aside Director General Commissioner be empowered to seek report from valuer on any transaction of Real Estate Trading
Giving rationale to the proposal, the KTBA said this will strengthen the taxation system and will able to collect tax from elite class.
