FBR empowered to purchase any immovable property

The government has empowered Federal Board of Revenue (FBR) to purchase any immovable property within six months of registration by paying a certain amount over and above the declared value, withdrawal of withholding tax on bonus shares, adjustable tax on purchase and sale of shares at stock exchange, gradual reduction in Super Tax and reduction in corporate tax rate at 29 percent for the Tax Year 2019.
Through the Finance Bill 2018 issued here on Friday, the FBR has introduced tax reforms in the real estate sector under which the non-filers shall not be permitted to purchase property having declared value exceeding Rs 4 million.
The tax collected by the stock exchange from its members @ 0.02% on the purchase and sale of shares under section 233A of the Ordinance is currently treated as final tax. The tax on commission earned by members of the stock exchange has now been made adjustable, said the Finance Bill 2018.
In order to deter under-declaration and consequent loss of revenue, the FBR shall have the right to purchase any property within six months of registration by paying a certain amount over and above the declared value which may be 100 percent in the fiscal year 2018-19, 75 percent in the fiscal year 2019-20 and 50 percent in the fiscal year 2020-21 and thereafter. In order to implement the above measures, enabling provisions shall be incorporated in the Income Tax Ordinance, 2001. Detailed procedure(s) and the date of coming into force of the above measures shall be notified later.
Widespread tax reforms have been envisaged for streamlining the issues related to the real estate sector. The salient features of such tax reforms included property transactions shall be recorded at the value declared by the buyer and the seller. The property rates notified by FBR (for the purpose of collection of taxes on sale purchase of property) and DC rates are to be abolished.
At the federal level, one percent adjustable advance tax from the purchaser on the declared value shall be collected and this tax shall replace the existing withholding tax on sellers and purchasers of property.
The provinces shall be requested to abolish the provincial rates for the collection of stamp duty (commonly known as DC rates) and to collect a total of one percent tax under stamp duty and capital value tax on the value declared by the buyer and the seller of property.
Advance tax under section 236K of the Ordinance is collected from the purchaser of property at the time of transfer of such property. In cases where payments for purchase of property are made in installments the purchaser has to bear the entire burden of collection of such advance tax at the time of transfer or property. In order to provide relief to persons purchasing property in installments, advance tax on purchase of property shall be collected piecemeal with each installment.
Presently the rate of Super Tax under section 4B of the Income Tax Ordinance, 2001 is 4% for banking companies and 3% for persons other than banking companies having income of Rs 500 million and above. In order to encourage, incentivize and increase the competitiveness of companies and to enable them to contribute optimally towards economic growth, Super Tax shall be gradually withdrawn. It will be continued at the same rate for the financial year 2017-2018, however, the rate of super tax for both banking as well as non-banking persons shall be reduced by 1% for each successive year starting from the financial year 2018-19.
In pursuance of the government's policy of providing relief to the common man and alleviating the hardship of persons having low incomes the Prime Minister in his press conference held on 5th April,2018 announced that threshold of taxable income would be enhanced from Rs 400,000 to Rs 1,200,000. Subsequently, the Income Tax (Amendment) Ordinance, 2018 was promulgated on April 8, 2018. As per this Ordinance, the enhanced threshold of taxable income shall apply with effect from 1st July, 2018.
In a bid to promote and incentivize companies and bolster their competitiveness, the corporate tax rates shall be reduced from 30% in Tax Year 2018 to 25% in Tax Year 2023.The corporate tax rate will be 29% in Tax Year 2019 and will be reduced by 1% each year up to Tax Year 2023 ie the corporate tax rate shall be 29% for Tax Year 2019, 28% for Tax Year 2020, 27% for Tax Year 2021, 26% for Tax Year 2022 and 25% for Tax Year 2023.
Presently, receipt of bonus shares is included in the definition of income and withholding tax under section 236M and 236N of the Income Tax Ordinance, 2001 is charged @ 5% on the issuance of bonus shares to shareholders. In order to encourage capital formation and enable companies to issue bonus shares in lieu of dividends to improve their liquidity, withholding tax on issuance of bonus shares has been withdrawn and receipt of bonus shares has been ousted from the definition of income under the Income Tax Ordinance, 2001.
Under the Finance Bill 2018, tax is required to be deducted at the rate of 12.5% from a filer upon payment of dividend by a REIT Scheme. In order to promote REIT schemes in Pakistan the rate of withholding tax on payment of dividend by a rental REIT Scheme to a filer has been reduced from 12.5% to 7.5%.