budget proposals

SECP suggests measures to document real estate sector

Budget 2021-2022, Stock & Commodity

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.

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