Property registration in Punjab: Mega WHT evasion scam unearthed

  • Tax office of Federal Board of Revenue conducts an electronic audit of property registrars in Punjab
Updated 18 Dec, 2023

ISLAMABAD: A tax office of the Federal Board of Revenue (FBR) has conducted an electronic audit of property registrars in Punjab and unearthed withholding taxes evasion of billions, which were collected on property transactions, but never deposited in the national kitty.

The FBR’s tax office in Sargodha has busted an organised gang of property registrars, revenue officers and lawyers in Punjab, who failed to deposit deducted withholding taxes on buying and selling of immovable properties of billions.

The FBR’s first ever electronic tax audit of immovable properties unearthed a massive revenue loss by sub-registrars of properties. So far, the Regional Tax Office (RTO) Sargodha has recovered over Rs 388 million from the defaulters. The digital audit of withholding taxes in real estate sector exposed the organised fraud being committed in connivance with the buyers/ sellers of properties using fake challans.

The Regional Tax Office (RTO) Sargodha has unearthed a unique tax fraud involving property registrars and others, who caused revenue loss of billions by retaining deducted withholding taxes on immovable property transactions. The collection of withholding tax on immovable properties is a major revenue contributor in the FBR’s direct taxes collection.

FBR wing unearths Rs1.2bn tax fraud scheme

From July 1, 2023, the rates of withholding tax under sections 236C (Advance Tax on sale or transfer of immovable Property) and 236 K (advance tax on purchase or transfer of immovable property) were substantially increased.

The withholding tax collection from sales of immovable properties recorded the highest growth of around 340.5 percent during 2022-23 as compared to 2021-22.

The withholding tax collection on sales of immovable properties stood at Rs70.326 billion during 2022-23 as compared to Rs15.966 billion in 2021-22, showing a massive increase of 340.5 percent.

The detection of revenue leakage on account of withholding taxes on purchase/ sales of properties pointed towards serious efforts to recover such evaded amount by the organized gangs of property registrars if operating in other cities.

If the FBR could be able to detect similar kind of revenue leakage in WHT collection in other RTOs, it can easily surpass its revenue collection targets of the remaining months of 2023-24. Other RTOs can adopt the electronic audit methodology as adopted by the RTO Sargodha, sources said.

In this connection, Regional Tax Office (RTO) Sargodha has conducted first of its kind of electronic audit of registrars of the properties, who failed to deposit deducted withholding taxes to the tune of billions on buying and selling of properties.

Sources told Business Recorder that the property registrars committed fraud in active connivance of the staff of sub-registrar offices, lawyers and regional revenue officers, causing revenue loss to the tune of billions. This is first of its kind of withholding audit of fiscal years 2022-23 and 2023-24 which unearth property tax fraud of billions within a short span of 30 days.

RTO Sargodha has conducted biggest enforcement action against the sub- registrars of the properties. RTO Sargodha comprises of five sub-districts which are responsible to deduct taxes on register and transfers of immovable properties under section 236C and section 236K of the Income Tax Ordinance 2001.

Chief Commissioner RTO Sargodha Dr Faheem Muhammad, Commissioner Withholding Zone Raja Babar Nawaz received credible reports that sub-registrars offices of properties are collecting withholding taxes on buying and selling of immovable properties, but the same has not been deposited in the national exchequer.

The RTO constituted a special audit team to conduct electronic audit of the registrars of the properties. The scrutiny of records revealed that the sub-registrars of properties caused massive revenue loss to the tune of billions to the national kitty. The modus operandi adopted by the sub-registrars offices revealed that they regularly collect withholding taxes on property transactions but retain the amount instead of forwarding to the designated accounts of the FBR. The officers working in the sub-registrars offices were also involved in issuing fake tax challans to evade the authorities.

There is a huge difference between the withholding tax rates for filers and non-filers. During the electronic audit, the record revealed that the withholding taxes were deduced without any difference between filers and non-filers. This means that the higher rates of withholding taxes prescribed for the non-filers were not applied on the immovable property transactions conducted by the non-filers.

The astonishing part of the story is that all 17 sub-registrars offices were involved in retaining the amount of deducted withholding taxes on immovable properties. The special audit team also found evidence of the huge amounts of withholding taxes illegally retained by the said sub-registrar offices through middlemen and “wasseqa navees” in collusion with the buyer/ seller of property.

The tax office has initiated recovery proceedings and prosecution against the involved persons under enforcement provisions of the Income Tax Ordinance 2001.

The RTO has also issued recovery notices to the registrars under section 161 of the Income Tax Ordinance 2001 and also notices to the taxpayers under section 162 of the Income Tax Ordinance.

Copyright Business Recorder, 2023

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