Regional Tax Office, Karachi has proposed that a property which has undergone more than one transaction in last five years may attract tax to be collected by the registrar of property from the seller wef fiscal 2010-11. According to the budget proposals (2010-11) of the RTO Karachi submitted to the Federal Board of Revenue, in the transactions of immovable properties capital value tax (CVT) is levied on the purchasers whereas the gain in the hand of seller is out of tax net.
The gain on immovable properties should either be collected by the federal government or by the provincial governments. The federal government can not levy tax on immovable property in view of the constitutional restriction. However, multiple transactions carried out by the taxpayers were legally approved by the appellate fora as "an adventure in the nature as business income."
It is suggested that a property, which has undergone more than one transaction in last five years, may attract withholding tax @ 10 percent to be collected by the registrar of property from the seller. This collection would be final except in the case of builders or developers.
Presently only a non-resident taxpayer can obtain an advance ruling under section 206A. This facility should be extended to the resident taxpayers as well, it added. The RTO Karachi has proposed that market committee may be considered as withholding agent for the collection of income tax along with market fee from the auctioneers.
It is noted that vegetables and fruits markets are an un-organised sectors where people are earning taxable income but remain out of tax net. Market committees duly approved by Provincial Governments are monitoring and implementing these market affairs. Fruits and vegetables are duly auctioned in the vegetable and fruits markets by auctioneers who are collecting 2 percent to 5 percent from the successful bidder on each bid for the market committee.
It is suggested that market committee may be considered as withholding agent for the collection of income tax along with market fee from the auctioneers. It is further suggested that 5 percent of withholding may also be collected by the auctioneer from the successful bidder and the same be handed over to market committee who would collect market committee fee along with income tax withholding from the auctioneer.
For income tax purpose market committee will be the withholding agent. For this purpose a new withholding section u/s 236AA may be introduced. It has been proposed that presently the CVT is payable on recorded value of the transaction. It is noted that some times the recorded value is less than collector's rate.
In such cases the concept of minimum CVT is required to be introduced; where the recorded value is less than collector's rate, the CVT would be levied on the collector's rate. Similarly in property transactions where no value is recorded eg General power of Attorney, gift deed, the minimum CVT should again be equal to collector's value.
It is observed that the prevalent collector's rate is only 20 percent of the real value of the property, Based on the values of the properties transferred in case of public auction as well as acquisition by the multinational and banking companies, actual/market value can be determined. Five such cases provide a yardstick to measure actual market value of the property.
Hence a mechanism needs to be devised to determine the value of the properties near to the actual value. Suitable amendment in law needs to be made to enable the department to apply a uniform multiplier to the collector's rate for each year to be announced by FBR yearly.
The RTO Karachi has further proposed that mentioning of business activity may kindly be made a mandatory requirement and any Return whether e-filed or manually filed, may be considered a deficient return' if the said column is left blank by the taxpayer and it be considered a case of "short document" for the purposes of issuance of a notice under Section 120(3) of the Income Tax Ordinance, 2001.
With the speculation in market value of property rates in the country especially in the urban areas, the present collector's rate is only a fraction of the fair market liquidity of the property. It is therefore proposed that the Board may specifically appoint Valuation firms in order to have an estimate of the fair market value of a property, which will be used in assessment/audit procedures.
Similarly, a minimum amount of capital Value Added Tax needs to be levied because many transactions (non-arms length, baynami, etc) are made even below the collector's rate.
The RTO Karachi was of the view that section 120 of Income Tax Ordinance 2001 except all the returns, which are filed u/s 114. Return is due in the case of AOP and Individuals on or before September 30 and in the case of company either upto 30th September or 31st December depending upon the tax year they have adopted.
It has been experienced that a number of taxpayers who have taxable income and they are supposed to file returns within the due date, deliberately do not file returns and in the absence of any deference they become non-filers. Some of them however file the return at their own convenience and at the cost of revenue. No doubt late filing return attracts additional tax but question is not of the levy of additional tax, it is important that they withhold information necessary for audit which would further generate revenue.
In its budget proposals, the RTO Karachi has further suggested that the NTN should be held mandatory in case of commercial outlets and industrial undertakings applying for new electric connection or gas connection. Existing electricity connection and gas connection for commercial and industrial undertaking may also be allowed to furnish NTNs to these utility service providers within three months.
The size of parallel economy almost equals the size of official economy. Increased emphasis on documentation, therefore, is need of the hour. To start with, for all the refund claimants, it should be mandatory to give bank account number where the refund cheque should land after all the procedural formalities.
Secondly, the taxpayer should give undertaking that he does not operate any other account in the name of business. The process in question should be gradual and not sudden so that there is no resistance from any quarter.
The budget proposals (2010-11) of RTO Karachi further revealed that the provision of minimum taxation is being misused by restaurants who by posing as retailers and by under declaring their annual sales are availing the benefit of section 113A of the income Tax Ordinance, 2001. Either the section be withdrawn or else the restaurants may be excluded from the purview of this section.
In order to enforce recovery of tax demand, necessary amendment in law is proposed for mandatory payment of tax upto 15 percent of tax demand before the filing of first appeal and subsequent 15 percent for filing of appeal at next appellate forum. Necessary amendment in recovery rules is proposed in order to safeguard the revenue and to avoid un-necessary litigation, RTO Karachi added.