ISLAMABAD – The Federal Board of Revenue (FBR) has issued determinations regarding the valuation of immovable properties identified as concealed or undeclared assets under Section 111 of the Income Tax Ordinance, 2001.
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FBR gets details of buyers, sellers of immovable properties
The Federal Board of Revenue (FBR) is employing a comprehensive approach to enhance tax compliance by obtaining crucial information on buyers and sellers of immovable properties through provincial registrars.
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CGT on immovable properties reduced by 50 percent
ISLAMABAD: The capital gain tax on (CGT) disposal of immovable properties has been reduced by 50 percent in order to promote investment in construction industry.
According to Deloitte Yousuf Adil, Chartered Accountants, the Finance Bill 2020 proposed reduction in tax rates by 50 percent on capital gains arising on disposal of immovable property.
This is in line with the Government’s vision to promote construction industry and to provide stimulus for the growth in economy as construction sector provide employment to a number of sub-sectors.
S. No. Amount of gain Rate of tax Existing Proposed 1. Where the gain does not exceed Rs.5 million 5% 2.5% 2. Where the gain exceeds Rs.5 million but does not exceed Rs.10 million 10% 5% 3. Where the gain exceeds Rs.10 million but does not exceed Rs.15 million 15% 7.5% 4. Where the gain exceeds Rs.15 million 20% 10% A person responsible for registering, recording, or attesting transfer of immovable property is required to collect advance tax from seller of such property.
Such advance tax is not collected where the immovable property is held for a period exceeding 5 years.
The Bill proposes to reduce this time limit of 5 years to 4 years.
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Tax collection from property purchase falls amid FBR action against black money
KARACHI: The collection of withholding tax on purchase of immovable properties fell by 12 percent owing to fall in prices after slowdown in economy and enforcement of legal provisions by Federal Board of Revenue (FBR).
Sources in local tax office in Karachi said that the collection of the tax office fell to Rs390 million during first eight months (July-February) of current fiscal year as compared with Rs443 million in the same period of the last fiscal year.
The sources said that slowdown in economy had restrained people from purchasing or transfer immovable properties. Further the enforcing legal provision related to curb black money also prevented investment in the real estate business, they added.
The sources said besides these issues the ongoing hearing related to illegal constructions in Karachi city at the level of Supreme Court of Pakistan also impacted the purchase of immovable properties.
They said that the decline in collection of withholding income tax was also due to deteriorating in open market prices due to fear of action against black money.
It is reported that the real estate business in Pakistan is one of the biggest avenue for the black money.
The withholding tax on purchase of immovable property is one percent of the declared value on the basis of FBR valuation table. However, the tax rate is two percent if the buyer is not on the active taxpayers list (ATL).
However, changes in the law enable the tax authorities to examine the declared value by a purchaser and on non-satisfaction the tax authorities may assess the property on fair market value.
The sources said that the real estate business was also afraid as tax authorities had started obtaining information from bank regarding payment for the purchase of immovable properties.
Besides, the tax authorities are also obtaining information of buyers of immovable properties from provincial property registrars on real-time basis.
The sources said that the tax machinery was finalized strategy to take harsh action against black money invested in real estate business in the wake of significant shortfall in revenue collection.
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Immovable property purchase made mandatory through banking channel
KARACHI: Tax authorities have said that payment for purchase of immovable properties above Rs5 million is mandatory to be paid through banking channel. (more…)
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Source of money for immovable property purchase may be questioned
KARACHI: Federal Board of Revenue (FBR) has said that a commissioner of Inland Revenue has been empowered to ask source of money used for purchase of immovable properties under legal provisions related to undeclared assets.
The FBR in explanations related to purchase of immovable properties, said that the commissioner of Inland Revenue can ask to explain the source of funds in the investment made in immovable property and apply the provision of unexplained income under Section 111 of Income Tax Ordinance, 2001 by providing opportunity of being heard.
The tax authority explained to general queries related to FBR valuations of immovable properties. The FBR responded in a scenario when a person is not a filer of income tax returns and the person intended to purchase property at FBR’s notified rates and required to pay advance tax under Section 236K at the time of purchase.
The general query was whether commissioner can ask the question of source of investment for such property.
The FBR in another query related to purchase of an immovable property at FBR’s notified value on which advance tax payable whether commissioner of Inland Revenue shall still be empowered to re-determine the value of property?
The FBR said that the commissioner was not empowered to re-determine the value of the immovable property purchased on the valuation as determined by the FBR for which advance tax under Section 236K of Income Tax Ordinance, 2001 has been paid on such valuation.
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FBR takes action against non-compliant return filers owned immovable properties
ISLAMABAD: Federal Board of Revenue (FBR) shall take penal action against persons who owned immovable property and remained non-compliant with filing of income tax returns.
Officials at the FBR said that date for filing income tax returns had expired on February 28, 2020. However, individuals and companies still can file their returns by paying penal amount besides late filing payment to appear on Active Taxpayers List (ATL) 2019.
The officials said that tax offices would scrutinize cases of persons who owned immovable properties during tax year 2019 i.e. July 01, 2018 to June 30, 2019.
They said that as per Section 114 of Income Tax Ordinance, 2001 every individual requires to file annual income tax returns, who owns immovable property with a land area of two hundred and fifty square yards or more or owns any flat located in areas falling within the municipal limits existing immediately before the commencement of Local Government Laws in the provinces; or areas in a Cantonment; or in Islamabad Capital Territory.
Besides, those individuals also require to file annual returns, who own immovable properties with a land area of five hundred square yards or more located in a rating area.
Further person, who owns flat, having covered area of two thousand square feet or more located in a rating area.
The FBR officials said that reportedly the real estate sector of the economy was known to be parking area for black money and money laundering. They said that the FBR had already launched aggressive drive to eliminate incidence of black money.
They said that persons who filed their income tax returns for tax year 2018 but not filed their returns for tax year 2019 and purchase immovable properties during tax year 2019 would be screened.
The tax authorities have obtained record of sales and purchase information from provincial registrars of immovable properties.
They said that those persons, who concealed their money used for purchase of immovable properties, would face action.
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Values of immovable properties may be enhanced to prevent money laundering
KARACHI: Federal Board of Revenue (FBR) may increase valuation of immovable properties in order to prevent money laundering in the real estate sector.
“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,” the FBR said in an official note.
The sources in FBR said that considering the lower valuation set by the FBR as compared with open market valuation, the FBR values may be enhanced further in future.
Considering the real estate sector as parking lot for untaxed month, a wide range of steps had been taken to restructure the taxation of this sector.
The various steps being taken are as under:-
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 were 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.
In addition, 3 percent tax for not explaining the source of investment was withdrawn.
As the increase in FBR values of immovable property would increase the incidence of tax on genuine buyers and sellers, the rate of withholding tax on purchase of immovable property has been reduced from 2 percent to 1 percent.
The 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 was abolished and withholding tax on purchase is to be collected irrespective of the value of property.
Previously, there was no withholding tax on sale of property if the property was 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.
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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Law passed for speedy transfer of immovable properties
ISLAMABAD: The Senate on Monday approved an important legislation to facilitate the speedy transfer of movable and immovable property of the deceased, to the legal heirs.
Letters of Administration and Succession Certificates Bill, 2020 is one of the key legislations, in Government’s legal reform agenda, to get the assent of both the National Assembly and the Senate.
The purpose of this law is to provide for an efficacious and speedy mechanism for issuance of letters of Administration and Succession Certificates.
One of the problems faced by the legal heirs of the deceased is the transfer of immovable and movable property even in the cases where no ‘factual controversy’ i.e. any objection by legal heirs or dispute regarding the identity of legal heirs exists.
Law Ministry has devised a mechanism to establish Succession Facilitation Units in collaboration with the National Database and Registration Authority (NADRA) for the issuance of Letters of Administration and Succession Certificates within 15 days of initiation of application by the legal heir/heirs of the deceased.
The initiative would enable NADRA to use biometric authentication to issue Succession Certificates and Letters of Administration for the first time in Pakistan.
Before this law, it took 2 to 7 years to get a simple Letter of Administration or Succession Certificate by the courts. Previously all the legal heirs had to be present in the courts in Pakistan, now even if legal heirs are not present in Pakistan, the Letters of Administration and Succession Certificates will be issued.
This will save a lot of expense and time and will release onerous burden on the courts.
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FBR gets information of property transactions
KARACHI: Federal Board of Revenue (FBR) has received information of buyers and sellers of immovable properties during the period July – December 2019, sources said.
The sources in tax offices told PkRevenue.com that bulk of information was provided by provincial property registrar offices and housing societies along with complete details of buyers and purchasers.
The sources said that the information would be used for detecting concealment of tax money and quantum of black money used in transactions.
The sources said that there was huge gap between values of property declared at the time of registration or transfer with fair market values.
They said that the property registrar offices and housing societies on behalf of the FBR collect withholding tax and deposit the same into the national kitty. Besides, working as withholding agents they also require to provide information of buyers and sellers under Section 165 of Income Tax Ordinance, 2001.
The withholding agents under Section 165 are require to obtain information of persons making transactions such as: name, Computerized National Identity Card Number (CNIC), National Tax Number (NTN), and address of each person from whom tax was collected or to whom payments were made from which tax was deducted.
As per law the withholding agents are required to provide details of all transactions and persons involved to the FBR by January 31, 2020 for the period July – December 2019.
The sources said that the withholding agents require to collect withholding tax from seller under Section 236C and from buyers under Section 236K of the Ordinance.
They said that in scrutiny process on the basis of information the tax offices would ask banks to provide payments details of buyers and sellers to identify the actual amount paid for transactions.
The sources said that the tax authorities had been empowered to take action where fair market value was not declared in purchase of immovable properties.
The real estate business is believed to parking lot for black money in Pakistan. Over the last few years the FBR made significant progress to encourage clean transactions in buying and selling of immovable properties.