FBR explains new property taxes to clear up uncertainties

FBR explains new property  taxes to clear up uncertainties

KARACHI: In a bid to clear confusion regarding amendments in respect of taxation on immovable property introduced through the Finance Act 2016, the Federal Board of Revenue (FBR) has explained in detail the new tax laws.

The FBR clarified that withholding tax (WHT) on transfer of immovable property in the hands of seller has been increased to 1% for filer and 2% for non-filer. Moreover, for the buyers, the WHT on immovable property has been increased to 2% for filer and 4% for non-filer, it said. The board also explained that this tax was applicable only if the immovable property was acquired within five years in the hands of the buyers.

As far as taxation on builders and developers is concerned, the authority explained that the income of builders and developers would now be taxed on the basis of specified rates based on cities and area of the property in respect of projects approved after July 1, 2016. The board will prescribe rules regarding mode and manner of tax payment.

Through Finance Act 2016, capital gain tax on sale of immovable property on disposal of immovable property acquired within the last five years has been increased to 10% from 5%.

Prior to Finance Act 2016, fair market value for the purpose of probing the source of investment in acquisition of immovable property was determined by the commissioner. However, under the Income Tax Rules, fair market value was to be determined as value fixed for the purpose of collecting stamp duty by the provincial revenue authorities, the FBR added.

Now, the powers of commissioner have been withdrawn and valuation is to be made by a panel of approved "valuers" of the State Bank of Pakistan. Similarly, the binding nature of the value determined by the provincial revenue authorities for collecting stamp duty has also been withdrawn, the FBR clarified.

Through an amendment to Section 15 of the ordinance, the chargeability of tax on property income for an individual and Association of Persons (AOP) has been changed from 'net income basis' to 'gross income basis'.

The gross rental receipts of an individual and an AOP shall be taxed at prescribed rates without allowing any deductions and allowances under Section 15A. The tax deducted or deductible under Section 155 in case of an individual and an AOP shall constitute final discharge of tax liability.

A new Division-VIA has also been inserted in Part-l of the First Schedule, which prescribes the tax rates applicable to rental income of individuals and AOPs. Similarly, WHT rates for rental payments to individuals and AOPs have also been prescribed in the revised table in Clause (a) of Division-V of Part-III of the First Schedule. However, property income derived by an individual or an AOP below Rs 200,000 shall not be taxed if the individual or an AOP does not have income from any other head.

Property income derived by companies shall continue to be taxed under the existing provisions as before, it concluded.