WEDNESDAY JUNE 29: Imposition of CGT on agricultural land deals: FBR may be empowered by Parliament

ISLAMABAD: The Federal Board of Revenue (FBR) will be able to impose capital gains tax (CGT) on buying/selling of agricultural land following latest ruling of the Law and Justice Division that, "after amendment in Entry No 50 of Federal Legislative List through the Constitution 18th Amendment Act, 2010, the levy of tax on capital gain on the disposal of immovable property has fallen within the domain of the Parliament to legislate on the subject".
Sources told Business Recorder here on Tuesday that the FBR will introduce three major changes in the Income Tax Ordinance 2001 including introduction of a new section 236C, amendment in First Schedule of the Ordinance 2001 and amendment in section 37 of the Ordinance for imposition of the capital gains tax (CGT) on immovable property following legislation by Parliament.
The agricultural land is covered under the definition of the immovable property and any gain on sale of agricultural land will become taxable after imposition of the CGT on immovable property. The selling of the agricultural land would be covered within the scope of the CGT for taxation purposes following legislation of the Parliament to authorise the FBR to impose the CGT on immovable property.
Sources said that the valuation tables of provinces could be used for the imposition of the CGT on immovable property including agricultural land as gain on assets as the levy of tax on capital gain on the disposal of immovable property has fallen within the domain of the Parliament to legislate on the CGT.
In case the agriculture land has been inherited and subsequently being sold, the same could be subjected to the CGT after amendment in the relevant provisions of the Ordinance 2001. If intention of the government is to impose the CGT on immovable property during 2011-12, the FBR will move a new Bill ie Income Tax Amendment Bill 2011-2012 before the Parliament, sources added.
According to sources, prior to the amendment in item No 50 of the Federal legislative list of Schedule Four to the Constitution of 1973 through Eighteenth Amendment (Act of 2010) the Parliament had no power to legislate for the levy of tax on capital gain on disposal of immovable property.
Through Eighteenth Amendment in the Constitution, item No 50 of the Federal Legislative List has been amended as under:- "50. Taxes on the capital value of the assets, not including taxes on immovable property". The words "on capital gain" has been omitted from amended Federal Legislative List.
Accordingly, the matter was referred to the Law and Justice Division for opinion which has been received wherein the proposition referred by the FBR has been agreed and the said Division is of the opinion that after amendment in Entry No 50 of Federal Legislative List through the Constitution 18th Amendment Act, 2010, the levy of tax on capital gain on the disposal of immovable property has fallen within the domain of the Parliament to legislate on the subject.
Sources said that at present income under the head capital gain from disposal of immovable property is exempt under clause (c) of sub-section (5) of Section 37 of the Income Tax Ordinance, 2001 and the removal of this clause from the sub section (5) of Section 37 will make the gain from disposal of immovable property taxable.
In the Income Tax Ordinance, 2001, a new section 236C shall be added for collection of tax from the seller at the time of transfer of property at the rate to be provided in First Schedule to the Income Tax Ordinance, 2001. For this purpose, the First Schedule to the Income Tax Ordinance, 2001 has to be amended for giving rates of the CGT.
Sources added that the tax on capital gain from disposal of immovable property shall help to effectively tax the real estate sector. It would play a major role in plugging one of the loopholes for whitening untaxed money in the name of capital gain. The imposition of the CGT on immovable property is in line with the principle that every income is taxable unless specifically exempted. It may bring stability in the prices of immovable property conveying healthy message to the masses, sources added.