Property registrations, transfers galore in twin cities: new taxation regime from July 1

Following increased valuation rates on immovable properties from July 1, 2019 and revision in taxation regime for real estate sector, the property registration and transfer offices in Islamabad and Rawalpindi witnessed extraordinary activity of property transfers on Thursday.
The Federal Board of Revenue (FBR) has proposed massive changes in the taxation regime from July 1, 2019. The FBR has also enhanced values of immovable properties in all major cities from July 1, 2019. The FBR rates of immovable properties would be taken closer to or about 85% of actual market value from July 1, 2019, the FBR added. Moreover, the FBR has also revised the taxation of capital gains on immoveable properties.
The FBR is all set to implement other measures to document buying and selling of immovable properties and has taken a wide range of steps to restructure the taxation of this sector. On Thursday, every registration and transfer property office in Islamabad witnessed extraordinary crowd particularly family transfers. The similar kind of situation has been witnessed in Rawalpindi where large number of sellers and purchasers appeared before the concerned Tehsildar/Naib Tehsildar/Circle Revenue Officer along with their witnesses for transfer of properties.
There was a panic like situation at the property registration offices of twin cities of Rawalpindi and Islamabad, as everybody seems to complete his/her property transfer process before July 1, 2019. A large number of families were also witnessed at these offices for the purpose of family transfers.
As Friday (June 28) would be last working day of current week and almost end of fiscal year, a large number of people preferred to compete buying and selling process before July 1.
To document buying and selling of immovable properties, the government has made it mandatory for persons to purchase assets through banking channel under the Finance Bill 2019.
In order to ensure documentation of real estate transactions and also to ascertain the actual value of a transaction of purchase of asset, persons purchasing immovable property of fair market value greater than rupees five million and one million or more in the case of any other asset, would now be required to make payment for the said purchase through a crossed banking instrument so that transaction can be clearly identified from one bank account to another. In case of non-compliance, the deductions in respect of depreciation and amortization in respect of such assets shall not be allowed. Further, the amount of purchase shall not be treated as cost for calculation of any gain on sale of such asset. A penalty at the rate of five percent of FBR value of asset is being be imposed for violation of this requirement
At present capital gain on immovable properties is subject to separate taxation on the basis of holding period of property. The tax rates are 10 percent, 7.5 percent and 5 percent for holding periods less than one year, between one to two years and between two to three years respectively. There is no tax if the property is held for more than three years. In order to check tax evasion and to ensure equal taxation of all incomes, income from capital gains is being brought under the normal tax regime and taxed at normal rates. However, to account for the time value of money, the gain on open plots would be reduced on the basis of net present value so that where the holding period is up to one year the full gain will be taxed. Where the holding period is between one to ten years, 75 percent of the gain shall be taxed and there will be no tax in case the holding period is more than 10 years.
Similarly, gain on sale of constructed property is to be fully taxed where the holding period is up to one year and 75 percent of the gain will be taxed where the holding period is between one to five years. Where the holding period is above five years no gains shall be taxed
As the increase in FBR values of immovable property is going to increase the incidence of tax on genuine buyers and sellers, the rate of withholding tax on purchase of immovable property is being reduced from 2 percent to 1 percent.
At present, withholding tax on purchase of property is attracted only if the value of property is more than four million rupees. The threshold of four million rupees is being abolished and withholding tax on purchase is to be collected irrespective of the value of property.