Property Fullstop replied on Wednesday, June 12, 2019 11:58 AM PST
The State Minister for Revenue Hammad Azhar in his Federal Budget for FY19-20 speech, proposed to increase immovable properties’ rates of Federal Board of Revenue (FBR) by taking it closer to about 85% of actual market value.
Also, he proposed that persons purchasing immovable property of fair market value greater than rupees 5 million in the case of immovable property and one million or more in the case of movable property may be required to purchase through a banking instrument other than a bearer cheque. A penalty at the rate of 5 percent of FBR value of immovable property is proposed for violation of this requirement. Further in case of violation of this condition, no depreciation allowance shall be available and purchase price for capital gain purpose shall also be treated as zero. Currently, the actual market rates are usually 5 to 10 time more than DC rate and 2 to 4 times of FBR rate.Furthermore, it is proposed in the Budget speech that income from capital gains may also be taxed under normal tax regime at normal tax rates. Income from capital gains on open plots is proposed to be taxed at 100% where the open plot is sold within one year and for period up to ten years. Income from capital gains on constructed property is also proposed to be taxed on similar lines when sold within period of five years. In case a property is sold within one year it shall be taxed as normal income. Tax shall be charged on 3/4rth of the income if the same property is sold after one year.
At present if a purchaser of an immovable property pays 3% tax on the difference between the DC value and FBR value of property, he is not required to explain the source of investment on the said differential amount. This is a permanent tool for whitening of undeclared money which is against the international tax norms.
Therefore it is proposed to withdraw the tax at the rate of 3% on differential amount. According to details, FBR had introduced valuation tables of immovable properties in major cities. The government says 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% of actual market value. As the increase in FBR values of immovable property is going to increase the incidence of tax on genuine buyers and sellers, it is proposed that rate of withholding tax on purchase of immovable property may be reduced from 2% to 1%. At present, withholding tax on purchase of property is attracted only if the value of property is more than four million rupees which is a loophole. There is a tendency to avoid this tax by splitting the transaction amount.
In order to stop the misuse of this threshold, the withholding tax on purchase is proposed to be collected irrespective of the value of property. At present, there is no withholding tax on sale of property if the property is held for a period of more than three years. This is in line with the holding period for taxability of capital gain which is also three years. As capital gain is to be taxed under normal tax regime even beyond the period of three years, it is proposed that withholding tax on sale of property be collected irrespective of the holding period to bring it in line with the proposed treatment of capital gains. |