KARACHI: A resident person, who owns capital assets in Pakistan, will be taxed on deemed income arising from capital assets for tax year 2022.
An important amendment has been made part of the Income Tax Ordinance, 2001 through Finance Act, 2022.
Experts at PwC A. F. Ferguson & Co. explained this provision of the ordinance made part through Finance Act, 2022, as a resident person owning capital assets in Pakistan will be taxed on deemed income arising from capital assets for tax year 2022 and onwards.
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For this purpose, such deemed income shall be computed as 5 per cent of the Fair Market Value (as determined by the FBR under section 68 of Income Tax Ordinance, 2001 of capital assets.
The rate of tax on such income is prescribed as 20 per cent.
This translates into an effective tax at 1 per cent of Fair Market Value of capital assets.
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The experts said that an exclusionary definition of ‘capital asset’ has been provided, which effectively means that such tax is leviable only in respect of ‘immovable property’ situated in Pakistan owned by resident persons.
For the purposes of such tax; however, while following immovable properties shall stand excluded, the Federal Government has been empowered to notify any exclusion or inclusion of any person and/ or property from the scope of such tax:
(a) one immovable property owned by the resident person;
(b) self-owned business premises from where the business is carried out by the persons appearing on the active taxpayers’ list at any time during the year;
(c) self-owned agriculture land where agriculture activity is carried out by person excluding farmhouse (defined in a specified manner) and land annexed thereto;
(d) immovable property allotted to:
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(i) a shaheed or dependents of a shaheed belonging to Pakistan Armed Forces;
(ii) a person or dependents of the person who dies while in the service of Pakistan armed forces or Federal or provincial government;
(iii) a war wounded person while in service of Pakistan armed forces or Federal or provincial government; or
(iv) an ex-serviceman and serving personnel of armed forces or ex-employees or serving personnel of Federal and provincial governments, being original allottees of the capital asset duly certified by the allotment authority;
(e) any property from which income is chargeable to tax under the Ordinance and tax leviable is paid thereon;
(f) immovable property in the first tax year of acquisition where tax under section 236K of the Income Tax Ordinance, 2001 has been paid;
(g) where the fair market value of the capital assets in aggregate excluding the capital assets mentioned in clauses (a) through (f) above does not exceed Rs 25 million;
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(h) immovable property owned by a provincial government or a local government; or
(i) immovable property owned by a local authority, a development authority, builders and developers for land development and construction, subject to the condition that such persons are registered with Directorate General of Designated Non-Financial Business and Professions.
The constitutional validity of this tax in relation to entry 50 of the Fourth Schedule to the Constitution of Pakistan and the scope of any amount which can be deemed as income will have to be tested, they added.
