The most viable proposal to raise revenue collection through capital value tax (CVT) on immovable property is to levy nominal 0.5 percent to one percent CVT on all sizes of properties' transactions from July 1, 2010. Tax experts told Business Recorder here on Monday that the revenue collection sharply declined in 2009-10 after doubling the CVT rate, up to 4 percent, on land transaction from the earlier 2 percent.
The FBR had projected Rs 15 billion CVT collection on land transaction in 2009-10, against around Rs 3.5 billion in 2008-09. The only way to generate maximum revenue through CVT on immovable property is to cut the rate from existing 4 percent to 0.5 percent to 1 percent. This meagre amount should be levied across the board without any exemption on any size of immovable property.
The CVT on immovable property should be made a tool for documentation of property transactions instead of revenue generation. For example, there was no resistance from the general masses to pay withholding tax on cash withdrawal from banks due to nominal rate.
Resultantly, the collection would substantially go up in case CVT on immovable property is brought down from 4 percent to 1 percent in 2010-11. The proposal was considered during last budget (2009-10) preparation, but the idea was dropped during budget exercise. Keeping in view the current fiscal experience, the rate should be brought down as suggested from the next fiscal year.
Every purchaser should pay this nominal amount of tax, which would help in documentation of all immovable property transactions widening the tax net. The proper implementation of the CVT is necessary along with the VAT from 2010-11. The main reason for decline in CVT collection was massive leakage of the levy in league with the registrars, responsible for collecting CVT on behalf of FBR.
The board had issued new CVT challan forms for property transactions to introduce the system of computerised payment receipt (CPR) by banks. Sources said the purchasers of the immovable property, including commercial and residential property of specified sizes within urban areas, are required to deposit CVT under the new formula.
He would take the CVT form to the concerned registration authority for valuation of the property for CVT purposes. The purchaser would deposit the amount in the relevant bank where bank staff would feed particulars in the system for issuance of the CPR. The purchaser would submit the copy of CPR along with CVT form to the registration authority.