CGT on property: tax reform group to take up issue in next meeting

Tax Reform Co-ordination Group (TRCG) of the Federal Board of Revenue (FBR) will take up the issue of Capital Gain Tax (CGT) on immovable property in its next meeting to be convened on December 23, 2011. Sources told Business Recorder here on Friday that the 7th meeting of the TRGC would be convened at the FBR Headquarters to discuss key tax policy issues including CGT on immovable property.
Under the existing legal status, Parliament has the authority to legislate for empowering the federal government for collection of the capital gain tax (CGT) on immovable property after 18th Constitutional Amendment. The CGT could be imposed on the immovable property after 18th Amendment. Thus, Parliament can authorise the federal government to collect CGT on immovable property through legislation.
Experts said that the exclusion of the 'immovable property' from the section 37 (Capital Gains) of the Income Tax Ordinance 2001 could empower the FBR to collect capital gain tax on property transactions without legal implications. At present, immovable property is exempted from capital gain tax under section 37 of the Ordinance 2001. If the government amends the Income Tax Ordinance 2001 through the Finance Act, the immovable property could be directly brought within the purview of the capital gains.
The TRCG would also finalise the redrafting of the SRO 1012(I)/2011. The FBR had proposed imposition of 19 percent sales tax ie 16 percent standard rate of sales tax and 3 percent sales tax on value-addition on the commercial importers engaged in import of raw materials and inputs in the name of five zero-rated sectors, but actually supplied to unregistered persons or manufacturers of non-zero rated sectors. The TRCG would discuss the redrafted statutory regulatory order (SRO) on revised zero-rated regime. At the time of import, no sales tax shall be charged from commercial importers but guarantee (in form of good for payment cheque or pay order or bank guarantee or cash) shall be required.
Sources said that the guarantee shall be released on subsequent supply of the imported items to registered persons within the five zero-rated sectors. An important condition of the revised notification is that if imported goods are supplied to unregistered persons or to manufacturers of non-zero-rated sectors, then sales tax @ 16 percent along with value-addition tax 3 percent shall be charged on such supplies and this amount of tax shall be deposited in exchequer and thereafter the guarantee shall be released. The imports by manufacturers of non-zero-rated sectors shall be chargeable to sales tax @ 16 percent. The import of made-up articles of 5 sectors shall be charged sales tax @ 5 percent, irrespective of the fact whether they are imported by commercial importers or manufacturers of any sector, sources said.
According to sources, the tax authorities would give an update on the FBR's performance in fiscal 2011-12 including revenue collection, broadening the tax base and results of enforcement/administrative measures to improve collection in the remaining period of current fiscal year. The TRCG would also discuss measures for expanding the outreach and tax proposals of the TRCG members, sources added.