Purchase of immovable properties: Advance tax exemption for expatriates sought

ISLAMABAD: The overseas Pakistanis including non-resident persons should be exempted from advance tax payable under section 236K of the Income Tax Ordinance 2001 on the purchase of immovable properties in Pakistan to attract foreign remittances.

Talking to Business Recorder, a real estate analyst, Muhammad Ahsan Malik, stated that the advance tax under section 236K of the Income Tax Ordinance 2001 is an adjustable tax. The tax is adjusted at the time of filing of income tax returns. How an overseas Pakistani would adjust this tax if he is non-filer or not required to file income tax returns, he asked. At the same time, the tax on deemed rental income is also a major hindrance in new investments to be made by overseas Pakistanis in the real estate sector. The overseas Pakistanis should only be subjected to section 236C (advance tax on sale/ transfer) of the Income Tax Ordinance 2001, but exempted from the said section 236K.

In order to attract foreign remittances, the withdrawal of the advance tax under section 236K of the Income Tax Ordinance 2001 would be a major step of the government, he said.

The advance tax under section 236K of the Income Tax Ordinance 2001 on the purchase of immovable properties is a major area of concern for overseas Pakistanis. They are reluctant to purchase properties in Pakistan and diverted their investments in other areas abroad. The FBR has already substantially raised the values of immovable properties across the country.

Resident persons: Deemed income from immovable properties now taxable

The government policy to declare investment in real estate sector as “non-productive” and doubling of taxes in last budget has serious negative impact on this sector. The real estate sector supports a number of associated industries and sectors which needs to be understood by the government, he said.

He referred to the Punjab government that reduced the rate of stamp duty from 2 percent to one percent on the urban areas due to lacklustre activity in the real estate sector. The Punjab government was forced to reduce the stamp duty from 2 percent to one percent due to the prevailing situation in the real estate sector. The FBR should share figures about the collection of taxes from the real estate sector during first quarter (2022-23) after enforcement of the Finance Act 2022.

In the last budget, the rate of advance tax on sale or transfer and on purchase or transfer of immovable property has been enhanced from 1% to 2%. Moreover, sub-section (3) of section 236C has been omitted. Now advance tax on sale or transfer of immovable property will be collected under this section irrespective of holding period. In case of purchaser of immovable property who is not appearing on the active taxpayers list, rate of tax to be collected under section 236K will increase by two hundred and fifty percent of the rate specified in the law.

It is worth mentioning that some of non-resident Pakistanis may not be required to file income tax return by virtue of applicable provisions of the Ordinance. Therefore, they do not appear on the active taxpayers list and hence likely to suffer the mischief of rule 1 of Tenth Schedule of the Ordinance. In order to facilitate non-resident Pakistanis holding Pakistan Origin Card (POC) or National ID Card for Overseas Pakistanis (NICOP), provisions of section 100BA and rule 1 of the Tenth Schedule will not apply on them in respect of transactions on which tax is collectible under section 236C and 236K of the Ordinance that apply on purchase or sale of immoveable property.

Copyright Business Recorder, 2022