Overseas Pakistanis and real estate investors are not clear about payment of capital value tax (CVT) on immovable property in cases where the power of attorney received through Pakistan's missions abroad lack mention of value or area of the property under transaction.
Sources said on Monday that amendment in section 7 of Finance Act, 1989 was made through Finance Act, 2006 to extend levy of CVT on urban immovable property. Transfer transactions leviable to CVT include acquisition of assets through purchase, gift, exchange, surrender, power of attorney or relinquishment of rights.
However, taxpayers and withholding tax agents have raised certain queries pertaining to payment of CVT on immovable property, due to difficulty in legal interpretation of income tax law in certain situations. In this connection, people have submitted their representations to CBR.
In one case, the agents were of view that due to shortage of workforce it was not possible for them to file monthly statement. However, the tax officials opined that it is the legal obligation of all agents to file monthly statement regarding transfer of immovable property and payment of CVT thereon as prescribed under part-XII of Second Schedule to the Income Tax Rules 2002. The tax officials said that no compromise or exemption can be made or granted on this issue.
In the following situations, guidelines/advice from the Board is required: First, the power of attorney received through Pakistan's missions abroad sometimes do not have the value or area of the property mentioned. How CVT would be paid on these Powers of Attorney?
Second, the CVT is apparently chargeable on a power of attorney written in favour of a banking institution with the objective of acquiring loan against the property. Whether CVT is chargeable on such power of attorney submitted along with mortgaged deed?
Third, if a father executes and registers a gift deed in favour of his son, no CVT is chargeable, but if the son does so, such exemption is not provided. The position needs clarification by the Board. Fourth, what is the difference between a 'flat' and a 'house'? The matter has been referred to the Board for clarification.
Fifth, with reference to transfer of property in rural areas through a gift deed (other than covered under exemptions provided) or general power of attorney, it has been pointed out that no recorded value at the time of transfer of property is available and this transfer would be subjected to levy of CVT as per recorded area. In some cases, the CVT so charged may be more than the actual cost of acquisition/market value of land. Taxpayers have demanded some relief in these cases, sources said.
The CBR had clarified that the government will not collect CVT on urban immovable property transactions pertaining to inheritance or gifts to spouse, parents, grandparents, brother and sister. The transactions for inheritance or gifts, covering spouse, parents, grandparents, brother and sister have been excluded from the ambit of CVT.
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