No immunity to concealed income invested in immovable properties

No immunity to concealed income invested in immovable properties

ISLAMABAD: People purchasing immovable properties are now required to make true declaration as immunity to such investment has been withdrawn.

Sources in Federal Board of Revenue (FBR) told that an amnesty to undeclared amount was available for making investment in real estate business.

The amnesty was granted through Income Tax (Fourth Amendment) Act, 2016 dated December 2, 2016 during Nawaz Sharif government and people took huge benefit from this scheme to whiten their money.

The government has proposed to withdraw this provision through Finance Bill, 2019 as part of budget 2019/2020, presented on Tuesday. The proposal was accepted by the parliament and it has become part of Finance Act, 2019.

The FBR in its income tax salient features said that 3 percent tax for not explaining the source of investment is being withdrawn.

Section 236W was introduced to Income Tax Ordinance, 2001 through Income Tax (Fourth Amendment) Act, 2016 dated December 02, 2016.

This section was granted immunity from declaring source of investment for the purchase of immovable properties.

The FBR said that in Pakistan the Real Estate sector is one of the biggest sources of money laundering and is used as a parking lot for untaxed as well as ill-gotten money.

In view of this a wide range of steps have been taken to restructure the taxation of this sector.

The various steps being taken are as under:-

(i) At present, the Board has issued valuation tables of immovable properties in 21 major cities wherein such properties are valued at a value higher than the DC rates. The purchasers are also required to pay 3 percent tax on the difference between the DC value and FBR value of property to explain the source of investment to the extent of differential between FBR value and DC value. The rates notified by the Board are still considerably lower than actual market value.

It is therefore intended that FBR rates of immovable properties would be taken closer to or about 85 percent of actual market value.

(ii) As the increase in FBR values of immovable property is going to increase the incidence of tax on genuine buyers and sellers, the rate of withholding tax on purchase of immovable property is being reduced from 2 percent to 1 percent.

(iii) under the immunity, withholding tax on purchase of property was attracted only if the value of property is more than four million rupees. The threshold of four million rupees is being abolished and withholding tax on purchase is to be collected irrespective of the value of property.

(iv) Under the immunity, there was no withholding tax on sale of property if the property is held for a period of more than three years. Since capital gain is to be taxed under normal tax regime even beyond the period of three years, withholding tax on sale of property would be collected where the holding period is up to five years.

(v) Previously the law imposed restriction on registration or transfer of property having fair market value exceeding rupees five million in the name of a non-filer. The aforesaid restriction placed on purchase of immovable property has been withdrawn.

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