ISLAMABAD: Securities and Exchange Commission (SECP) has submitted its tax proposals for budget 2021/2022 for documenting real estate sector and promotion of Real Estate Investment Trusts (REITs).
The SECP submitted following suggestions for documenting real estate sector and promotion of REITs:
(i) Reduce tax on dividend from REITs from 25 percent to 15 percent to synchronize it with mutual funds [First schedule, Part-1, Division-III, paragraph B] of Income Tax Ordinance, 2001.
(ii) Exempt advance tax on property transfers to/from a REIT Scheme u/s 236C and 236K of Income Tax Ordinance, 2001.
(iii) Exemption for CGT provided in clause 99A, Part 1, 2nd schedule be applied to all categories of REITs (mix-use projects) without any sun-set clause
(a) Core objective of the proposals:
• To support government vision for development of housing sector and allied industries
• To promote regulated real-estate sector for promoting documentation and transparency
• To introduce level playing field for regulated sectors
• To remove disadvantage/dis-incentive caused to the REIT sector (Presently 1 licensed REITs, 4 REITs in pipeline and 9 RMCs registered)
• To increase overall tax revenue for FBR and provincial revenue authorities
(b) Direct and indirect impact on tax revenue (impact will be positive)
• Direct tax revenue for FBR increases; example – Tax revenue of Dolmen City REIT is highest tax being paid compared to any other Mall bigger or of same size. In addition, corporate tax from RMC;
• Encourages sector to grow thereby, fostering economic activity through allied industries resulting in higher tax collection;
• Transfer of properties to the REIT structure will also induce proportional tax collection of provincial/local revenue departments;
(c) Benefit for national economy
• Promoting economic activity through regulated, documented and transparent models and moving towards formal economy
• Level playing field for different investment avenues (collective pooled investments through REIT Fund)
• Investor participation in real estate sector with protection of interests under the REIT law vis-a-vis, falling prey to unregulated real estate sector mushrooming in the market
• Increase in revenue for the federal and local governments;
• Disclosure and taxation of property transactions at market value instead of DC rates
• Job creation related to construction, real estate and allied industries;
• Broaden the investor base and size of capital markets;
• Due to mandatory listing, small savers can share profits arising from real estate industry (which currently not available) – tax revenue from trading at stock exchange + CGT.