FBR unwilling to cut withholding tax on real estate

LHC grants stay against application of FBR-determined property valuations

ISLAMABAD: The Federal Board of Revenue (FBR) has refused to reduce the withholding tax on property transactions, though it suffers a setback in efforts to increase collections from the realty sector after suspension of new property valuations by the Lahore High Court (LHC).

The developments take place at a time when the government is preparing to give the largest-ever tax amnesty that will provide space for legalisation of Rs7 trillion worth of black money. A meeting of the National Assembly Standing Committee on Finance will take place on Tuesday to give the go-ahead to an amnesty scheme.



The committee will take up a report prepared by its sub-committee to give final shape to the amnesty scheme, demanded by the realty sector and its sympathisers in the government. The sub-committee met for the second time on Monday.

During the meeting, representatives of the realty sector demanded that the government also reduce the withholding tax on property transactions in addition to the amnesty scheme for legalising the black money parked in the real estate sector.

The FBR would oppose the call for reduction in the withholding tax on sale and purchase of immovable properties, said FBR Chairman Nisar Mohammad Khan while speaking during the sub-committee meeting.

At present, the FBR is charging 1% to 2% withholding tax from the seller of property and 2% to 4% from the purchaser. In addition to this, it is collecting up to 10% capital gains tax.

The government doubled the tax on property transactions in the budget for fiscal year 2016-17 in addition to notifying new property valuation rates.



Khan said the proposal of lower withholding tax could only be reviewed in the next budget and stressed that discussions should remain focused on the property valuations. These valuations become the base for the collection of federal taxes.

At present, the taxes on property transactions are determined through the property values set by the district commissioner (DC) at the provincial level while federal taxes are paid on the basis of FBR-notified property rates.

Dealers are declaring two types of prices - one for provincial taxes and the other for federal taxes. Such a difference between the actual market rates and the DC rates has led to the parking of over Rs7 trillion in the real estate sector over the years.

However, the LHC has granted a stay order against the FBR-notified property valuations on the ground that the tax authorities do not have such powers. The court took the decision in the light of Supreme Court’s decision on the definition of federal government.

The government had enforced the FBR-notified valuations by promulgating a presidential ordinance on July 31, 2016. To give permanent legal cover to the ordinance, it has moved a bill in the National Assembly, which the standing committee on finance will take up for approval on Tuesday.



Finance Minister Ishaq Dar recently said the property valuations determined by the FBR would fetch an extra Rs100 billion in revenues, which were under threat after the LHC stay order.

The FBR’s valuations were significantly higher than the DC rates. Still, the actual property rates are far higher, which has also been acknowledged by parliamentarians and representatives of the realty sector.

Despite this, the government is willing to offer the tax amnesty scheme instead of penalising the violators for understating the property valuations for dodging actual income tax.

In the first meeting of the sub-committee, its member Mian Abdul Manan said the amnesty would be offered at the rate of 3%. He claimed that the finance minister and the special assistant to the PM were also on board.

Originally, the FBR had applied fair market values but retreated within a month after the realty sector protested. Now, the sector is not even ready to pay taxes at the rates that they have already agreed.

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

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