Expert floats budget proposals ‘FBR should raise valuations with cut in advance tax on property deals’

ISLAMABAD: The Federal Board of Revenue (FBR) has received a budget proposal that the FBR’s valuation and district (DC) valuations to be raised by 33 percent with simultaneous reduction in advance income tax rate on sales and purchase of properties from 3 percent to 2 percent.

Muhammad Ahsan Malik, a real estate expert shared his budget proposals with the Ministry of Finance, Federal Tax Ombudsman (FTO) and FBR here on Monday.

Secondly, the 3% income tax (236-C) on sale of property must be abolished on sale/resale of property and 6% flat rate can be charged U/S-37 as capital gain tax at the time of transfer of property. This will give the market a positive sentiment. It will help generate the extra revenue.

Thirdly, the developers and builders must be required to pay 1% Advance Income Tax (236-C) on their sale so that all transactions are documented which will help stop overselling.

Fourthly, the Advance Tax (236-K) on purchase of immoveable properties by non-filers must be reduced from 10.5% to 6% but at the same time non-filers’ widows should be given a special status of filer.

Fifthly, for non-filers the capital gains should be 8% of FBR value to be collected by the registration authorities.

Sixth, no Income Tax (236-K) should be collected on purchase of properties by a NICOP holder & a foreign passport holder (For Overseas Pakistanis).

Seventhly, the Capital Gains Tax U/S-37 should be reduced to 2% (instead of proposed 6%) if the construction of property is financed through banks encashment of foreign remittance by Overseas Pakistanis.

Eighth, the Income Tax returns should be auto populated on the transactions data of immoveable properties.

According to the expert, the FBR’s valuation and DC valuations can be raised by 33% (after removing the anomalies in valuation tables) but at the same time the advance income tax on sales and purchase of properties must be reduced, ie, from the present 3% to 2%. In this way, same amount of revenue will be collected but there will be 33% increase in white income required to purchase the property.

He said during the past few years Pakistan is facing multiple challenges in the sphere of the national economy as a result of which the real estate sector which has the potential of contributing to the country’s economic growth has totally nosedived.

It is a considered opinion that the primary reason for this state of affairs is the distrust of the government in Real Estate Sector, which they consider to be non- productive sector. The obvious reason behind this is while preparing the policies on relevant subjects, no proper professionals nor true representatives from real estate sector were taken on board. No doubt the sector is mostly undocumented and measures must be taken to take out the true potential of revenue without hurting the growth.

The following issues and policies need a review: (i) Introduction of negative Taxation (like 7E &; 15% Capital Gain Tax, high Stamp Duty and high Advance Taxes on the buyers and sellers of immoveable property).

(ii) The wheel of real estate businesses has nearly jammed and it also affected the allied Industries.

(iii) Unemployment is multiplying and there is no economic growth.

(iv) Furthermore because of the slowdown of transactions, the target of generating additional revenue, as a result of these policies, it has decreased substantially.

Malik stated that there can be no denying the fact that the Real Estate Sector has contributed tremendously in country’s economic growth in the past and still contributes a significant portion to the GDP. The government needs to take well considered bold and concrete initiatives, if they wish to use Real Estate as one of the catalysts of economic growth.

In this regard, following suggestions are given for your kind understanding, consideration and implementation:

The government needs to work on trust deficit between government and the public.

“We need to work on one valuation mechanism and uniformity in real estate taxation all over Pakistan,” he said.

All government departments should share their real-time data for public. Especially, the FBR, BOR offices and Excise &Taxation Departments must declare the figures and number of transaction with comparison of last three years.

The Office of Special Assistant to the Prime Minister or Finance Minister as deemed appropriate may be established with appointment of a market professional having in-depth knowledge of real estate issues, taxation matters, and workable solutions. The government recently announced the name of Naeem Meer as Chief Coordinator for traders to bring them in tax net, he added.

Copyright Business Recorder, 2024