Realty market insists on tax levy at provincial rates

The realty sector of Punjab claims new taxes have led to a fall in federal and provincial revenues

LAHORE: The realty sector of Punjab has asked Federal Finance Minister Ishaq Dar to levy taxes on property rates set by the province instead of evaluations made by the Federal Board of Revenue (FBR) as new assessments have increased the cost of property transactions by up to 400%.

“The realty sector is in chaos since the announcement of new taxes and revised property valuations,” said Mian Talat, former president of the Defence Housing Authority Estate Agents Association, Lahore.



The new taxes imposed by the federal government to boost its revenue stream had proved counter-productive for the national exchequer as fewer transactions in the current fiscal year led to a fall in the federal and provincial tax collections, he added.

The realty sector has sent a letter to Dar with a proposal to collect taxes on property values set by the district commissioner (DC) for the next three years.

It said the federal government should realise that if the intent of presidential ordinance and amendments to the Income Tax Ordinance 2001 was to enhance federal revenues, it could not be achieved without first ensuring that ordinary citizens remained interested in the sale and purchase of properties without any fear and hesitation.

Under Section 236C, the government has increased withholding tax on real estate sellers from 0.5% to 1% for the tax return filers and from 1% to 2% for the non-filers.

Similarly, the withholding tax (advance tax) under Section 236K on real estate purchasers has been increased by 100% from 1% to 2% for the filers and from 2% to 4% for the non-filers.

The letter pointed out that the increase in withholding tax if linked with the colossal increase in property values would cause around 400% rise in the tax rate.



“Since all transactions under Section 236C will be under scrutiny of the FBR, it will have particulars of the purchaser for issuing notices irrespective of the exemption limit of Rs4 million. Action can be initiated by the FBR under powers conferred in Section 111 (unexplained income) of the Income Tax Ordinance 2001,” the letter stated.



It said sellers of even smallest plots had gone on the back foot as every transaction would attract advance tax. Similarly, the purchasers have been made to realise that even though there is an exemption limit of Rs4 million, they will be subject to scrutiny and issuance of notices.

“This has discouraged all common citizens of the country from selling or buying residential properties.”

The letter said the increase of 100% in withholding tax was included in the budget for 2016-17 based on the prevailing DC rates, however, the fair market values, which were higher by around 100% to 200% compared to the DC rates, had created an overall impact of around 400%.

It was suggested that the issue must be properly addressed and either the withholding tax should be brought back to the level of 2015 or the new fair market values should be done away with, and the higher withholding tax may be applied only to DC values.

It was also proposed that in order to remove fears from the minds of sellers and purchasers of immovable property, these measures may be taken immediately and may be allowed to remain in place for two to three years.

After this period, the process of bringing the sellers and purchasers into the documented network can be initiated and adopted gradually.

The writer is a staff correspondent

Published in The Express Tribune, August 22^nd,  2016.

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