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Amendments proposed on 8th of September was passed by the National Assembly of Pakistan to the Supplementary Finance (Amendment) Bill 2018. The prominent feature of the bill is the proposal of lifting a ban on non-filers who are interested in purchasing property worth more than 5 million PKR. However, many critics declared this step as the u-turn from Khan Government saying that there were substantial efforts have been made by the government in annual budget 2018-19 to increase the ratio of tax filers by penalizing the non-filers, while the proposal present in the mini budget is contrary to these efforts.
Later on, during the speech, while presenting the mini-budget, finance minister Asad Umar clarifies the confusion saying that the exception has been made only for overseas Pakistanis.
For local Pakistanis, the ban on non-filers remains intact.
According to a rough idea, Pakistan’s real estate sector worths over PKR 7 trillion and the major portion of it is undocumented. The new government is high on hopes about bringing this portion into the tax net by imposing new taxes and strictly implementing laws regarding taxes.
The task is not a piece of cake for the government. The buyers and investors now are opting for not to channel their investments into the property sector instead of paying taxes under the new tax regime.
The advancement in the tax structures essentially raises the need for a more thoroughly-planned approach for introducing these reforms gradually to potential taxpayers.
The government’s step to give exemption to overseas Pakistanis indicates that the tax regime presented in the annual budget has had some loopholes. And these loopholes are allowing people to dodge government. Therefore, instead of going up, the tax ratio is dropping.
There are some rumors about the government taking non-resident Pakistanis onboard on tax net who purchase property and cars for business purposes. However, the government will exempt all taxes on their income earned in the foreign country.
Non-resident Pakistanis can invest in real estate sector of Pakistan by filing their annual income tax returns. They can do it by utilizing the already reserved section of the Federal Board of Revenue. In the section, they can become tax filer by just entering their income and tax applicable on it as nil. You can also do property business as a means of income. All you’ve to do for it is to have a National Identity Card of Overseas Pakistani (NICOP) holder. You’ve to share the details on these assets with FBR.
To tackle anomalies, FBR will be active to apprehend those who hold NICOP just to avail tax exemptions.
The annual budget creates some other confusions as well such as registration of property value on the sale deed. The price mentioned is to be used for collecting withholding tax. This is causing the confusion among buyer and seller because the relevant law allows FBR to buy the property at rates higher by specific percentage than the amount mentioned in the documents.
There are some procedures to determine the actual market value of the property such as FBR valuation tables for calculated taxes collected at the federal level. On the other hand, for provincial taxes, the conventional rule was followed where taxes are paid as per the property’s DC rate.
Currently, the property segment needs a reliable, simple, and easy to understand taxation system where buyers and sellers understand how much tax they pay under what circumstances.
UPDATE: Government of Pakistan once again banned non-filers to purchase new cars and property worth over 5 million PKR.