The Income Tax Amendment Act 2016 has been signed by President Mamnoon Hussain. With this, the real estate tax amnesty scheme has gotten legal cover. Experts hope that the scheme will drag the real estate market out of the standstill it has been facing for over 5 months.
It is generally believed that pressure exerted by the business community, protests held by real estate agents and the influence of big investors together forced the government to announce this amnesty scheme. This could be partly true, but I believe that a stark drop in the revenue collected from the property sector has played a bigger role in this regard.
Reportedly, the Federal Board of Revenue (FBR) is currently facing a shortfall of PKR 100 billion in its budgeted tax revenue. A major chunk of this revenue is collected from the real estate sector, which has seen a drop of over 80% in transaction volume since July 2016. Furthermore, the new tax collection mechanism invoked a potentially harmful situation for the construction sector, affecting projects worth PKR 100 billion. Now that the amnesty scheme has been approved, the FBR hopes to collect PKR 50 billion in terms of tax revenue from the property sector.
Those interested in availing the amnesty scheme would be required to pay 3% tax on the difference between the DC rate and the rates notified by the FBR in its valuation tables. Reportedly, the new bill will be applicable for the properties purchased before July 2016. A tax official told reporters that the government would consider whether the scheme should continue, in the next budget.
Those looking to avail this scheme will not be probed about the source of money they invested in the property sector.
The Income Tax Amendment Act 2016 has exempted the families of martyred army, rangers and police officers from Capital Gains Tax and Withholding Tax on the sale of property inherited by or awarded to them. Furthermore, property worth PKR 4 million or less will also be exempted from Withholding Tax.