Federal Board of Revenue (FBR) Member Dr Muhammad Iqbal Tuesday said the Board has started work on rectifying errors in the FBR's notified valuation tables of immovable properties and the is committed to removing anomalies on the request of real estate sector.
During the first meeting of sub-committee of the Standing Committee on Finance, FBR Member (Strategic Planning, Reforms & Statistics) and Spokesman said that the valuation rates notified by the FBR are not the actual rates prevailing in the market. The FBR will increase the rates in phase-wise manner in next three years.
He said the FBR is already working on removing the anomalies in the valuation tables. To a query, he disclosed that some of people in Faisalabad obtained loans from banks for textile exports but invested the amount in real estate sector. Dr Iqbal further said that at present only one federal tax, ie, Capital Gains Tax (CGT) is applicable on real estate sector whereas withholding taxes are adjustable.
The return filers can obtain refund of the adjustable withholding tax on property transactions. If a non-filer carrying out transaction in real estate sector becomes filer, his tax would be reduced by 50 percent.
The real estate sector is already enjoying preferential treatment as far as taxes are concerned, he added. However, when MNA Abdul Rashid Godil said that FBR is not paying refund to the exporters, Dr Iqbal said that FBR is paying around Rs 100 billion refunds every year. To a query, he responded that non-filers always have an option to file income tax return and become filer to avail reduced rate of taxes. There is a reduction of 50 percent in taxes for filers as compared to enhanced rates for non-filers.
He said that the DC rates are minimum rates fixed for payment of local taxes by federal government on transfer or registry of immovable property. However, it has not been mentioned anywhere that taxes cannot be collected above the DC rates. The DC rates are the minimum rates for collection of local taxes by the provinces, but there is no bar on collecting taxes above the DC rates by the provinces. Therefore, the property transactions can be carried out at the actual market value which is above DC rates. "Where it is written that the local taxes on immovable properties cannot be collected above the DC rates", he questioned. The FBR informed the committee that an amendment was made in section 68 of Income Tax Ordinance, 2001, vide Finance Act. 2016 whereby the fair market value of immovable property was required to be determined on the basis of valuation made by a panel of approved valuers of the State Bank of Pakistan. Thereafter, the Income Tax (Amendment) Ordinance, 2001 was promulgated on 31.7.2016 through which FBR was empowered to specify rates for the purpose of Valuation of immovable property. FBR notified valuation tables in respect of property in twenty-one major cities in accordance with the said amendment.
As regards any proposal under consideration in respect of the Real Estate Sector by the FBR, it would be pertinent to mention that in the 41st meeting of the Standing Committee of the National Assembly on Finance various parliamentarians expressed their concerns and reservations about the fact that currently there are three separate rates prevalent in respect of valuation immovable properties:
Firstly, the rates notified by the District Collector (DC Rates) for purpose of levy of stamp duty/ CVT by provincial authorities. Secondly, the rates in respect of immovable property notified by the FBR and thirdly, actual market rates at which the transactions in immovable property are being made. Parliamentarians expressed serious concerns about confusion prevalent regarding application of various rates on immovable property especially rate adopted for purposes of unexplained income or assets in terms of section 11 of the Income Tax Ordinance (also for the purpose of section 236C, 236K and Capital Gains Tax). Taxpayers would be required under the law to explain the source of investment made in immovable property to the extent of valuation of property as per rates notified by FBR. It was argued that the rates notified by FBR have no relevance with the actual investment made. In some areas these are higher than the price actually paid and in others they are less than the actual price paid. Thus, it is very harsh and impractical to explain the source of investment at notional rates specified by FBR. It was also reiterated that investment of properties has virtually come to a halt in view of this uncertainty regarding issuance of notices by FBR to probe the sources of the investment in property.
In view of the above, various proposals were also put forth by the members in the 41st meeting of the standing committee of the National Assembly on Finance,. It was suggested that a one time exemption/waiver for a specified period may be granted with respect to explanation of sources of investment made in immovable property. Another proposal was that the difference between the DC rates and the FBR notified rates in respect of immovable property be subjected to a nominal fixed tax rate. However, FBR did not agree with these proposals.
Thereafter the standing committee decided in its meeting to constitute a sub-committee of the standing committee on Finance of National Assembly to make its recommendations in consultation with the stakeholders for resolving the issue of imposition of tax and on real estate transactions, the FBR added.
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