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In addition, 3 percent tax for not explaining the source of investment was withdrawn.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 The aforesaid restriction placed on purchase of immovable property has been withdrawn.