PTI government describes real estate as “one of the biggest sources of money laundering and is used as a parking lot for untaxed as well as ill-gotten money.”
With respect to the real estate, several initiatives have been taken in order to revamp the taxation of this sector. The various steps being taken are as under:
(i) At present, the Board of Revenue has issued valuation tables of immovable properties in 21 major cities wherein such properties are valued at a value higher than the DC (development charge) rates. The buyers are also supposed to pay 3% 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. Therefore, it is intended that FBR rates of immovable properties would be taken closer to or about 85% of actual market value. In addition, 3% tax for not explaining the source of investment is being withdrawn.
(ii) The rate of withholding tax on purchase of immovable property is being reduced from 2% to 1% as the increase in FBR (Federal Board of Revenue) values of immovable property is going to increase the incidence of tax on genuine buyers and sellers,
(iii) Momentarily, maintenance tax on purchase of property is attracted only if the value of property is more than Rs4 million. The threshold of Rs4 million 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) Currently, the law imposes restriction on registration or transfer of property having fair market value exceeding Rs5 million in the name of a non-filer. The aforesaid restriction placed on purchase of immovable property [by non-filers] is being withdrawn.”
A penalty at the rate of 5% of FBR value for violation of this requirement would be imposed.