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Non-Filers’ Property Trading – Govt Likely To Impose High Taxes

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The PTI government is considering to increase the advance tax on property tradings of non-filers. According to sources, govt is interested in raising the tax to almost 10% in the latest budget for the non-filers of income tax returns.

Currently, filers are entitled to pay the rate of one percent. However, for non-filers, the rate is two percent on a recording, registering, or attesting transfer of real estate property as per the section 236C of income tax ordinance, 2001. Moreover, in case your property worth up to 4 million rupees, you’re not entitled to pay any advance property tax. However, properties having value more than four million rupees comes under the tax rate of two percent for filers and four percent for non-filers as per section 236K.

According to sources, for non-filers, the government is interested in raising the advance tax up to 10 percent on the sale purchase of properties.

Since we all know that the real estate sector in Pakistan is widely known as the house of black money. People perform property dealings to white their black money. People make a huge amount of income through sale purchase of property without paying the due taxes.

The government will impose advance tax rates in contrast with the valuation of immovable properties acknowledged by Federal Board of Revenue (FBR). In the Finance Act 2018, the establishment of a directorate-general took place in order to detect tax evasion in property dealings.

Sources believed that the government is now all set to make the directorate fully functional. The moment FBR release notification about making directorate operational, the advance tax on the sale of immovable properties would not be applicable. On the other hand, under section 236K, the advance tax on the purchase of such properties would be decreased to only a percent by nullifying existing rates.

The tax law also allows amnesty to buyers of immovable properties under Section 236W.  According to this section, the buyer is exempted from declaring the source of income he is using to purchase properties subjected to the tax rate of three percent. This section will also nullify once directorate is operational.

According to credible sources, it would not be easy for FBR to make the directorate operational considering the tightening economic circumstances and gigantic and almost unrealistic tax collection target for the fiscal year 2019/2020.

Earlier, the World Bank had instructed the government to increase taxes on the transaction of properties. The World Bank believed that the low tax rates on real estate properties are one of the major reasons for money laundering and tax evasion.

World Bank has shown its concerns regarding substantial tax exemptions in property sector irrespective of location, particularly properties having dimensions below a certain size. The loss of revenue took place because of low valuations as compared to market rates for tax purposes.

“The capital gains tax returns negligible receipts due to the zero rate applied to capital gains from the sale of immovable property after more than four years of ownership, and rates of 5-10 percent for properties sold after one to four years of ownership,” the World Bank said in a report on Pakistan revenue mobilization program.

The government is actually making final arrangements with provincial governments to raise the valuation for properties in order to make them compatible with actual market rates. However, the unrealistic FBR valuation would be abolished once the federal and provincial governments come to a final conclusion regarding realistic revision in valuations of properties.