A Senate panel on Wednesday punctured the Rs183 billion revenue measures that the government proposed for the real estate sector while also disallowing companies to adjust future taxes against their previous year losses.
The Senate Standing Committee on Finance either proposed amendments to the taxation proposals or rejected them altogether, which if accepted would result in less collection compared to the receipt of Rs183 billion envisaged by the Federal Board of Revenue (FBR) on account of five major measures.
The standing committee appeared sympathetic towards the real estate sector that had not only become a hub for parking the undeclared money but also attracted investments from the productive sectors of the economy.
Pakistan Peoples Party (PPP) Senator Saleem Mandviwalla heads the standing committee on finance.
Federal Minister for State and Frontier Regions Senator Talha Mahmood, who belongs to the Jamiat Ulema-e-Islam (Fazl), also backed the standing committee recommendations.
He disclosed that the cabinet did not unanimously take the decision to impose taxes on the real estate sector, as he had given a dissenting note.
The standing committee proposed that the government should charge 5% tax on only those immovable assets that have a holding period of over five years.
The government has proposed the collection of this tax without any holding period restriction in a bid to encourage people to make productive use of these assets instead of just keeping them idle and making money on their sales.
The cabinet has cleared the proposal to collect an additional Rs30 billion in the next fiscal year.
Similarly, the standing committee proposed an amendment to the capital gains tax on real estate transactions. It recommended exempting the capital gains tax, if a property is sold after five years of the holding period.
In order to generate an additional Rs40 billion, the government has proposed in the budget to exempt the tax after six years. If the asset is sold within six years, the government has proposed 15% to 2.5% capital gains tax.
The standing committee rejected the government’s proposal to increase advance income tax from 1% to 2% on the sale and purchase of plots by the income tax return filers.
The government has recommended to double the rate to generate an additional Rs45 billion.
The standing committee took the non-binding decisions on the basis of representations given by the real estate sector representatives.
The government has proposed imposition of Rs440 billion in additional taxes, including Rs316 billion in income taxes.
These measures are still short of the International Monetary Fund’s (IMF) expectation that is now seeking reversal of certain relief measures, including for the salaried class.
The standing committee amended another budgetary measure that the FBR had proposed for the collection of Rs30 billion from the corporate sector.
Against the FBR’s proposal to disallow carry-forward losses against the minimum 1.25% tax paid by the companies, the committee proposed to carry forward the losses for three years.
The standing committee also proposed that 2% income tax that the government had proposed for all individuals, businesses and companies earning more than Rs300 million should be collected only on the amount that was above the Rs300 million threshold.
The government has proposed the collection of 2% tax on the total income aimed at generating Rs38 billion in the next fiscal year.
If accepted by the National Assembly, the Senate committee’s recommendations would puncture the FBR’s proposals floated to generate an additional Rs183 billion in the next fiscal year.
The FBR defended the withdrawal of condition to provide the Computerised National Identity Card (CNIC) number on supplies made to the unregistered persons through the Finance Bill 2022.
Briefing on the withdrawal of this major documentation measure, the Inland Revenue (Policy) chief informed the standing committee that the FBR was taking two adverse actions against the suppliers to the unregistered persons.
First, the sellers were bound to deposit 3% additional sales tax. Second, the input tax adjustment was denied where the CNIC numbers of the unregistered buyers were not given.
The Inland Revenue (Policy) chief said that there were also complaints that the sellers of Karachi were presenting the CNICs of unregistered buyers of Peshawar.
Tax authorities informed the committee that the cabinet had not approved any increase in sales tax on CKD/SKD kits of mobile devices and increase in sales tax on fertiliser inputs.
About the fixed tax scheme for retailers, Senator Mohsin Aziz stated that it was a political move of a political party to allow fixed tax to the retailers. The FBR should share the number of retailers to be brought under the fixed tax scheme.
Responding to this, FBR Chairman Asim Ahmad said that the sales tax was already applicable to the electricity bills of shopkeepers and small retailers. However, the FBR has enhanced the rate of tax.
“This is not a new tax and the fixed scheme was always there in the law,” he added.
Published in The Express Tribune, June 16th, 2022.
Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.
COMMENTS
Comments are moderated and generally will be posted if they are on-topic and not abusive.
For more information, please see our Comments FAQ