EDITORIAL: In a move purported to be for the benefit of overseas Pakistanis, the FBR has announced the launch of an initiative allowing such individuals to remain exempt from higher tax rates applicable on those not listed on the Active Taxpayers List (ATL) under sections 236C and 236K, which pertain to advance income tax on real estate transactions.
It is important to highlight that overseas Pakistanis by virtue of their non-resident status do not pay taxes in the country, and under clause 111AC of the Finance Act 2022 are exempted from filing tax returns, which means that their names do not appear on the ATL.
Since non-filers are subjected to higher tax rates for real estate transactions, the absence of overseas Pakistanis from the ATL naturally places them at a disadvantage. This new initiative aims to address that issue by enabling non-resident individuals to pay tax rates imposed on filers.**
In this regard, a new digital verification system has been introduced on the FBR’s IRIS portal that will allow overseas Pakistanis to verify their non-resident status, and hence benefit from the lower tax rates applicable on filers when conducting real estate transactions.
The process will require overseas Pakistanis to upload their POC or NICOP documents, generating a Computerised Payment Receipt.
A provisional PSID will then be created, which will initiate the verification process. This will involve an initial review by the Chief Commissioner of Inland Revenue, who will then forward the case to the concerned Commissioner of Inland Revenue for final approval, with applicants being notified of the ultimate decision via SMS and email.
While the FBR has intimated that this process will be completed within one business day, the fact that it involves multiple layers of scrutiny and given the notoriously sluggish pace at which bureaucratic processes in the country often unfold, it wouldn’t be out of place to doubt the feasibility of meeting this timeline in practice.
This could very well turn out to be a time-consuming exercise, burdened by procedural inefficiencies, ultimately defeating the purpose of facilitating overseas Pakistanis.
What must also be noted here is that the provision exempting non-resident Pakistanis from paying higher tax rates on real estate transactions was already part of tax laws until June 30, 2024. As reported by this newspaper earlier in the month, the FBR replaced the non-resident category on its portal with a “late filers” category, creating confusion and hassles for overseas Pakistanis.
While the FBR clarified that tax provisions under sections 236C and 236K remain non-applicable to non-resident individuals, the requirement for a verification certificate from the Commissioner of Inland Revenue has actually introduced an additional bureaucratic hurdle.
The tax bureaucracy’s tendency to make decisions riddled with anomalies and confusion has only complicated an already cumbersome system, making compliance a difficult and frustrating process.
Economic activity in the real estate sector has slowed down considerably in recent times, and while the FBR’s initiative is being portrayed as an attempt to encourage investment in this area, and hence also improve tax collections, its eventual effectiveness remains in doubt.
The truth is that the real estate sector remains plagued by significant issues. Not only is it a highly convenient avenue for parking tax evaded funds and black money, investments here are often unproductive as properties are acquired for speculation purposes instead of the land being put to productive use and contributing to the country’s GDP.
Instead of effectively addressing these considerable concerns, the authorities continue to take often inexplicable measures that fail to address the deeper structural problems. The abovementioned intervention, therefore, is unlikely to substantially stimulate meaningful investment or improve overall tax compliance, potentially leaving the sector trapped in inefficiencies.
Copyright Business Recorder, 2024
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