Page 54 - PakAccountantJan-Mar2017

Signature Qualification CA that Empowers to Lead PAKISTAN Around the current year’s budget, the government again Fifty percent rebate has been specified for first sale of property endeavour to address the framework of taxation for capital gain acquired or allotted as an original allottees to both ex-serving and on sale of immoveable property. The proposed Finance Bill tabled serving personnel of armed forces and to both ex-employees and before the National Assembly proposed to disregard the value serving personnel of federal and provincial governments. fixed or notified by any provincial authority for the purpose of stamp duty or for any other purpose, for determination of Withholding tax by the registration authority from seller and the fair market value. The exempt holding period was enhanced to buyer are tabulated below: five years while a flat rate of 10 percent was introduced. These proposed steps spurred debates in the circles as was construed and apprehended as discretionary powers to the Commissioners and against the initial intent to tap only short term ventures. The concerns of the stakeholders were addressed subsequently. The Finance Act withdrew the proposal and introduced new framework for determining fair market values which was to be done on the basis of valuation made by a panel of approved valuers of the Exemptions specified above for capital gains tax are also State Bank of Pakistan (SBP). The rates and holding period as per applicable for withholding of taxes applicable on seller. the Finance Bill were however retained. In order to avail immunity from rigours of Section 111 of the The government later realised that this framework of taxation Ordinance by tax payers, a non-adjustable withholding of tax over immoveable cannot be streamlined without taking the under Section 236W has been introduced on purchaser at three stakeholders on board. On July 30, 2016, the finance ministry percent of the amount representing difference between FBR held negotiations with property evaluators consequent to which notified values and provincial DC rates. Income Tax (Amendment) Ordinance, 2016 has been promulgated bringing certain amendments regarding the taxation of Apart from tapping these piecemeal sale transactions, the immoveable property. A further amendment Ordinance was issued government has from time to time tried to address the other on August 31, 2016. These changes have later been enacted by sectors related to real estate business. For encouraging the National Assembly. investments Real Estate Investment Trust (REITs) and As against the valuation to be done by approved valuers of Developmental REITs, certain exemptions have been specified. the SBP, the board has empowered itself to issue valuation To encourage documentation in builders and developers, notifications which is to be applicable for taxability of capital gain, the concept of minimum tax introduced vide Finance Act withholding of taxes on purchaser and seller and also for taxing 2013 has been replaced vide Finance Act 2016 with fixed tax concealed property in terms of Section 111 of the Ordinance. regime on square feet and square yard basis respectively. To However, the actual auction prices are to remain applicable in case attract corporatisation in property rental income business, the those are higher than the notified values. The federal government government has done distinction of taxation for companies has issued valuation notifications for twenty one major cities of and individual/AOP vide Finance Act 2016, as allow ability of the country. While it has been stated that for rest of the areas expenses against rental receipts has made the entitlements for provincial DC rates would remain applicable. companies only. The capital gain tax on sale of immoveable property has been Benami transaction has also been used as a mode to disguise amended. Certain exemptions have been specified in respect to the taxman by investing the untaxed receipts in property with withholding of taxes applicable at the time of sale of property. anonymous title. A bill namely 'Benami Transactions Prohibition Those exemptions have also been made applicable for capital Act 2016’ has been put before the legislative body for approval to gain taxes also. No capital gain taxes are applicable in case of sale prohibit such transaction. of property held for a period exceeding three years. Exemption has been specified in case of sale of property by dependents of Governmental endeavours to streamline taxation of immoveable shaheed of armed forces and a person who has died while on property are loud and visible. However, through such measures service with armed forces, employees of federal or provincial sizeable yields may be possible for the exchequer only if the government, subject to specified conditions. undocumented aspects of economy are brought under tax net. The applicable rates are given below. Rates have been separated This hefty objective may not be realised by legislating taxation. based on whether the Acquisition Date (A.D) fall before July 1, This would require broad measures including synchronisation 2016 or after: of underlying regulations with the tax code, coordination between the various regulators, computerisation of land record and transactions related thereto and, last but not the least, an awareness amongst the masses of their obligations to contribute equitably to the national exchequer. The objective of optimisation and smoothening of taxation system can only be achieved if the governance framework operates as a virtual trust and governance is devised, demonstrated and perceived by the masses as a system of by and for the people of the country. 52 The Pakistan Accountant January - March 2017