ISLAMABAD: The Reforms & Revenue Mobilization Commission (RRMC) has recommended the government to extend the income tax exemption available to the Real Estate Investment Trusts (REITs) up to June 30, 2026 to ensure launching of the REIT schemes by the newly licensed REIT Management Companies (RMCs).
The expected extension in the period of income tax exemption to the REIT scheme from June 30, 2023 to June 30, 2026 will encourage RMCs to launch various REIT schemes resulting in increasing economic activity by attracting local and foreign investors.
According to the recommendation of the RRMC under consideration of the Federal Board of Revenue (FBR) in budget (2023-24), there are more than 15 REIT Management Companies (RMCs) which have already acquired the RMC license to operate and are still in the process of launching different REIT Schemes, as per the available information. These RMCs picked up momentum post promulgation of revised REIT Regulations in Jun 2021 and subsequently Nov 2022.
The clause (99A) of Part I of Second Schedule to the Income Tax Ordinance 2001 provides exemption on profits and gains accruing to a person on the sale of immoveable property or shares of Special Purpose Vehicle to any type of REIT scheme up to the 30th day of June, 2023.
In the current situation whereby the benefit provided will be expiring on June 30, 2023, the newly licensed RMC’s will not be able to launch REIT schemes by that time. The advantage originally provided in the Income Tax Ordinance 2001 was to provide impetus to the REIT business. The benefit provided has played a pivotal role in expanding the REIT industry whereby large number of Companies has acquired the RMC license, RRMC stated.
The renewal of this benefit will attract entities/ person to sell their properties/ SPVs under REIT structure which is highly regulated and documented. Additionally, this will also encourage RMCs to launch various REIT schemes resulting in increasing economic activity by attracting local and foreign investors. It is; therefore, recommended that the benefit currently available may be extended till 30th June, 2026. Moreover, it is also recommended to substitute the word “immovable property” with “Real Estate” to align the provisions of the Ordinance with the provisions of REIT Regulations.
Moreover, Clause (11A), Part IV of Second Schedule to the ITO also provides exemption to REIT from application of section 113. Whereas, clause (47B), part IV, second schedule has already granted status of SPV to a REIT through an amendment vide Finance Act, 2022. The like amendment in clause (11A) was unintentionally missed, which has created an anomaly. Therefore, to remove this anomaly, Clause(11A) is also recommended to be amended in line with clause (47B) and the words “Special Purpose Vehicle, which has the same meaning as defined under the Real Estate Investment Trust Regulations, 2022” are recommended to be added along with REIT.
As this is a long-term measure, it is estimated that the long term revenue impact of this will be positive, RRMC recommendation added.
Copyright Business Recorder, 2023
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