Tax authorities are empowered to ask source of investment in real estate sector if any disparity is found between the government-defined and open market rates, officials said on Saturday.
The officials said the Federal Board of Revenue (FBR) set up the directorate general immoveable properties late last year to strengthen the taxation on real estate business.
The directorate has started working and is empowered to assess property valuations as per the fair market values in those transactions where valuations are found suppressed. It can ask source of income against purchase of property as per the new valuation tables.
The new valuation rates for immovable properties have been implemented from February 1.
The FBR issued revised valuation tables for immovable properties in 20 cities with enhancement of around 20 percent for collection of withholding tax on sale/purchase transactions.
The officials said property valuation rates are still far below the open market rates. “However, on information that the payment made for an immovable property is higher than the valuation then the FBR will also ask the source for remaining amount as well.”
Officials said the amnesty scheme announced three years back for real estate sector was also abolished as the directorate started working.
In August 2016, FBR issued valuation tables for 20 major cities for the first time to bring black money invested in the property business into the documented economy.
The objective was to determine FBR’s taxes on new valuations instead of provincial governments’ tables.
The FBR issued valuation tables after consultations with all the stakeholders with a pledge that the notified values would gradually be enhanced in the years to come.
The valuation tables were around 50 percent less than the fare market value in most of the cities.
Sources said the then finance minister announced to increase the valuation on yearly basis.
The previous government avoided to increase the valuation table due to elections year in 2017.
In 2016, a new section 236W was incorporated into Income Tax Ordinance, 2001 under which investment in property transactions to the extent of FBR value could be whitened after payment of three percent additional tax.
All property registration from December 2, 2016 attracted three percent additional tax from buyers irrespective of filers or non-filers of income tax returns.
The FBR also introduced Section 236 C (advance tax on sales/transfer of immoveable property) and 236 K (advance tax on purchase or transfer of immovable properties) under withholding tax regime to collect the income tax on the valuation basis. The sections are implemented on buyers and sellers of immovable properties.
The apex tax authority collected a flat three percent on the differential amount between FBR’s and provincial valuation tables for properties under an amnesty scheme.
The scheme was announced to encourage documentation and bring undocumented transactions into the tax net.
The scheme has whitened around Rs223 billion in the property transactions during period from December 02, 2016 to June 30, 2018.