Property taxes after real estate amnesty scheme
Government has approved tax amnesty scheme for real estate sector. Non-filers have to pay additional 3% tax to become filer or in other word to whiten the black money.
Changes in property taxes 2016-2017
WHT, CGT, ST & CVT will be charged according to the rates set in budget 2016. There is no change in these taxes. There is additional 3% tax for the buyers who are non-filer or who cannot show the source of income.
In some instances, FBR Property Rates are higher than the market value, government will reevaluate these rates. New rates of these areas will be lower than the market value.
Taxes to be paid by filers or taxpayer
For filer there are no additional charges. Filer has to pay the taxes according to budget 2016-2017.
Taxes to be paid by non-filer or non-taxpayer
For properties bought before 1 July 2016 and registered according to DC Rates, buyer has to pay taxes according to DC Rates. If people cannot explain the source of income, they have to pay 3% taxes according to DC Rates to be filer. For example, property was registered at 10 LAC as per DC Rates. Now FBR value of this property is 25 LAC. FBR will only ask the source of income of 10 LAC which was the registry value. If someone has no source of income, then that person has to pay 3% taxes according to DC Rates.
For new transactions since 1 July 2016, FBR will not ask the source of income up to the amount of FBR Rates. If property transaction is more than FBR Rates, FBR will ask the source of income. In this case person has to pay 3% tax on the difference between FBR Rates and actual value. For example, property value by FBR is 30 LAC and property market value is also 30 LAC, then FBR will not ask the source of income. But if FBR Rate is 30 LAC and property transaction value is 50 LAC, FBR will ask the source of income. In this case person has to pay 3% tax on difference between FBR Rate and actual value that or on 20 LAC.
For all new transactions since 1 July 2016, FBR will charge 3% extra withholding tax from non-filer buyers to become filers or to whiten the black money. WHT for non-filers is 4% according to budget 2016-17, so non-filer has to pay total of 7% as withholding tax to whiten the black money or to become filer.
Market sentiments
Real estate stake holders have welcomed this amnesty scheme. According to real estate stake holders, this amnesty scheme will uplift the stagnant reality sector. This will not only help the real estate sector but also to the all associated industries like construction.
Biggest challenge
In 70 years history of Pakistan many amnesty schemes have been approved. Unfortunately all amnesty schemes failed and proved to be useless exercises. Amnesty schemes were offered to bring undocumented economy to tax net. But even after so many amnesty schemes only 1% Pakistanis are filers. Government once again has approved amnesty scheme for real estate to bring black money to tax net. Let’s see how successful this scheme will be to attract the investors to real estate sector who are disheartened by high taxes and are tax dodgers.