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Tag: real estate

  • Key points of amnesty scheme for real estate sector

    Key points of amnesty scheme for real estate sector

    KARACHI: The federal government has made amnesty granted to real estate sector to the part of Finance Bill, 2020 in order to get approval from the Parliament.

    Deloitte Yousuf Adil Chartered Accountants in their budget explanations said that to stimulate investment in real estate and construction sector, a no-questions-asked amnesty has been introduced.

    Under this amnesty the Federal Board of Revenue (FBR) has been restrained from asking question related to source of investment made into the real estate / construction business.

    Both previous and current federal governments have launched tax amnesty schemes in 2018 and 2019, albeit the scope of this scheme is limited to investment made in construction sector only.

    The proponent of this particular amnesty scheme argues that this would act as a catalyst to increase economic activity in the country thereby improving employment opportunities as number of sub-sectors and small and medium size industries are associated with construction industry.

    The newly introduced scheme provides immunity from the provisions of section 111 of the Ordinance , and no questions will be asked regarding source of funds from investors making capital investment in new construction projects in the form of money or land, either as an individual, as an association of persons or a company, subject to conditions as explained below.

    For individuals:

    Monetary: Investor shall open a new bank account and deposit such amount in it on or before the 31st day of December, 2020

    Land: Investor shall have the ownership title of the land at the time of commencement of the Tax Laws (Amendment) Ordinance, 2020

    Corporate shareholder / Partner:

    Monetary: Such amount shall be invested through a crossed banking instrument deposited in the bank account of such association of persons or company, as the case may be, on or before the 31st day of December, 2020

    Land: Such land shall be transferred to such association of persons or company, as the case may be, on or before the 31st day of December, 2020. Provided that the person shall have the ownership title of the land at the time of commencement of the Tax Laws (Amendment) Ordinance, 2020

    Registration: The Company or AOP shall be a single object company duly registered under the Companies Act, 2017 or Partnership Act, 1932 as the case may be.

    Additional conditions to be met:

    • Prescribed IRIS form shall be submitted by the person making investment.

    • The investments made shall be wholly utilized in a project.

    • Grey structure in case of builders and landscaping in case of developers have been completed on or before September 30, 2022, and duly certified by NESPAK or respective map approving authority.

    • Further, for land developer, the following additional conditions should be met;

    • 50 percent of plots have been booked for sale and 40 percent of sale proceeds thereof have been received by September 30, 2022 as duly certified by specified chartered accountancy firm.
    • 50 percent of the project roads have been laid up to sub-grade level as duly certified by NESPAK.

    • The value or price of the land or building shall be higher of

    a) 130 percent of FBR assessed fair market value; or

    b) At the option of person making investment, lower of the value determined by at least two independent SBP approved valuers.

    Exclusion

    The following incomes or persons are excluded from the relief provided under the amnesty scheme:

    Holder of public office, benamidar or his spouse or dependents; or

    Public Listed Company, real estate investment trust or any company whose income is exempt under the Ordinance.

    Proceeds of crime including money laundering, terror financing excluding tax evasion.

    Restriction of Ownership Changes

    • Under the new amnesty, no change in ownership shall be allowed for incomplete projects except where 50 percent cumulative cost on the project has been incurred as certified by prescribed Chartered Accountants firm, with the exception of legal transmission to heirs.

    • Inclusion of partners or shareholders after December 31, 2020 is permissible; however, such investors shall not be eligible to avail tax amnesty.

    Amnesty to the purchaser

    Provisions of section 111 shall also not apply to:
    the first purchaser of a building or a unit in the building in respect of the purchase price both in case of new project or existing incomplete project where payment is routed through crossed banking instrument between the date of registration of project with the FBR and September 30, 2022.

    The purchaser of plot for building construction where the purchase, the payment thereof and commencement of construction has been made on or before December 31, 2020 subject to construction completion by September 30, 2022 and subject to registration of such purchaser with FBR on IRIS portal.

    Thus no questions would be asked from the purchaser of building or plot regarding source of funds who complies with the above mentioned conditions.

  • FBR sets up special assessment circle for builders, developers

    FBR sets up special assessment circle for builders, developers

    KARACHI: Federal Board of Revenue (FBR) has launched monitoring of sale and purchase in real estate sector by establishing dedicated zone for assessing developers and builders.

    Sources in the FBR said that cases of builders and developers had been transferred to special circular established at Large Taxpayers Unit (LTU)-II, Karachi.

    According to an official order made available to PkRevenue.com all the cases of tax offices in Sindh and Balochistan had been transferred to the newly established circle.

    The sources said that the developers and builders were enjoying the final tax regime for the past several years.

    However, through Finance Act, 2017 the taxation of such segments of taxpayers brought under documented economy.

    These taxpayers will now require filing true declarations and also providing details of transactions made with their clients.

    The special circle will conduct detailed audit of those taxpayers besides obtaining details of buyers.

    According to the official order, the special circular for builders and developers established at the LTU-II Karachi would have jurisdiction over those cases which were earlier with the LTU Karachi, Corporate Regional Tax Office (CRTO) Karachi, RTO-II Karachi, RTO-III Karachi, RTO Hyderabad, RTO Sukkur, RTO Quetta and all cases of builders and developers presently assessed in LTU-II Karachi.

    The FBR also notified setting up special circles at Islamabad and Lahore. The Islamabad circle will have jurisdiction over cases in Islamabad, Abbotabad, Peshawar, Rawalpind, Faisalabad, Gujranwala, Sargodha and Sialkot.

    Further, the Lahore circle shall have jurisdiction over cases in LTU Lahore, CRTO Lahore, RTO-II Lahore, RTOs in Multan, Sahiwal and Bhawalpur.

  • Pakistan assures IMF of strengthening taxation on real estate, agriculture income

    Pakistan assures IMF of strengthening taxation on real estate, agriculture income

    KARACHI: Pakistan has assured International Monetary Fund (IMF) of removing distortion in taxation system and strengthening taxation on real estate and agriculture income.

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  • Finance Bill 2019: Penalty proposed for non-banking real estate transactions

    Finance Bill 2019: Penalty proposed for non-banking real estate transactions

    ISLAMABAD: The government has tightened rules for transactions of immovable properties and through Finance Bill 2019 it is proposed that non-banking real estate transactions would liable for penalty.

    The Federal Board of Revenue (FBR) said that in order to ensure documentation of real estate transactions and also to ascertain the actual value of a transaction of purchase of asset, persons purchasing immovable property of fair market value greater than rupees five million and one million or more in the case of any other asset, would now be required to make payment for the said purchase through a crossed banking instrument so that transaction can be clearly identified from one bank account to another.

    In case of non-compliance, the deductions in respect of depreciation and amortization in respect of such assets shall not be allowed. Further, the amount of purchase shall not be treated as cost for calculation of any gain on sale of such asset.

    A penalty at the rate of five percent of FBR value of asset is being be imposed for violation of this requirement.

  • Finance Bill 2019: Amnesty on immovable property purchase withdrawn

    Finance Bill 2019: Amnesty on immovable property purchase withdrawn

    ISLAMABAD: The government has withdrawn a permanent amnesty for not explaining the source of investment in purchasing immovable properties.

    The government has proposed to withdraw this provision through Finance Bill, 2019 as part of budget 2019/2020, presented on Tuesday.

    The Federal Board of Revenue (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) At present, withholding tax on purchase of property is 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) At present, there is 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) Presently the law imposes 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 is being withdrawn.