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Ordinance empowers FBR to place market value on property

ISLAMABAD: With the promulgation of Presidential Ordinance for new property tax, the FBR is empowered to place market value up to an extent which will yield a substantial increase in revenue collection during the current fiscal year 2016-17.

Finance Minister Ishaq Dar has estimated jacking up of revenue collection up to Rs60-70 billion in the current fiscal after placing a new mechanism against Rs8 billion collection made by the FBR on the basis of stamp duty collection in the last financial year.

Although, the FBR has not yet notified the revised tables in accordance with the Presidential Ordinance as working on tables is underway which may be notified anytime soon, an example for illustrating the difference in revenues accrued to the exchequer in case of an open plot in Defence Phase VIII, Karachi (assumed to be sold within one year) will be standing substantial as the DC rate value for area of 1,000 sq yard would be standing at Rs1,990 for total value of plot amounting to Rs1990,000 so the total amount of tax would be standing at Rs19,900 in accordance with the old formula.

But with new amendments, the plot size of 1,000 sq yard, the value determined by the FBR would go up by Rs20,000 and total value of the area would be jacked up to Rs20,000,000, so advance tax on purchase in case of filers would be standing at Rs400,000 and advance tax on sale would be standing at Rs200,000.

So the total deductable tax will be increased to Rs600,000 with the new formula agreed by the government and real estate tycoons against Rs19,900 in accordance with the previous DC rates on the basis of which the federal taxes were collected.

Amendment in Section 68 of income tax ordinance was made and the FBR is empowered to determine and notify the fair market values of the immovable property.The rates to be notified have been agreed for the major cities and the same will be notified by the FBR soon. However, until the determination of such values by the FBR, values already determined for the purpose of stamp duty shall be deemed to be fair market values.

According to tax experts and Chartered Accountant Ashfaque Tola, it has also been made clear that following values shall not be less than the values determined for the purpose of stamp duty or by the FBR, as the case may be.

The value of property at the time of purchase and valuation of property under Section 111 means that the powers of district officer under Rule 228 of Income Tax Rule, 2002 to fix a higher value of constructed property, than value under Section 68 of ITO, for the purpose of section 111 of ITO, has been curbed.

Furthermore, in light of decision by Honourable Supreme Court (2009 PTD 1279), proceedings cannot be initiated, under provisions of Section 122 and likes, for the periods prior this amendment on the basis of Fair market values determined under section 68 of ITO.

However, legality of proceedings on the basis of other information (undisclosed asset, bank account) will remain untouched. It has further been explained that if the determined fair market value is different from auction price, the higher of the two values shall be applicable.

Moreover, the holding period for exemption from adjustable advance tax on sale or transfer of immovable property has been reduced to 3 years from 5 years. Also, such advance tax has been exempted if the seller is dependent of a Shaheed of Pakistan Armed Forces or of a person who dies while in the service or Federal and Provincial Governments. The advance tax has also been exempted on first sale of property acquired or allotted as an original allottee.

Capital Gain Tax rates have been reduced by 50% in case of first sale of property acquired or allotted to ex-servicemen and serving personnel of Federal and Provincial Governments, being original allottee of the property.


Published in The news, August 2nd, 2016.