WEB DESK: Federal Finance Minister Ishaq Dar revealed during a press conference at Punjab House that income tax (second amendment) ordinance 2016, effective from 1st August, was reflective of the success of almost a month long negotiation with the real estate sector.
The amendment stipulates market valuation of a property that would be undertaken by the Federal Board of Revenue (FBR), instead of the State Bank of Pakistan (SBP) as originally envisaged in the Finance Bill 2016, for computing Capital Gains Tax (CGT) and also for application of section 111 of the income tax ordinance that deals with unexplained income. It also reduces the holding period for exemption from CGT from 5 to 3 years.
Those who objected to the levy of this tax on grounds that the federal government is not constitutionally empowered to levy a tax on immovable property can be disabused of this contention by the Income Tax Ordinance’s Section 111 which relates to unexplained or undisclosed income that the Centre has the authority to not only tax but also to impose penalties. This section further allows the government to scrutinise all real estate transactions for the past six years, up to 2010.
Pakistan’s real estate sector has long been known to be the repository of black money and the quick turnover of property ownership has been regarded as the cheapest means to whiten black money and earn windfall profits as the levies on sale/purchase of property valued by the DC were negligible.
The extent of profits accruing from engaging in this sector became so massive over time and the outcome devastating for the average Pakistani as property prices especially in major cities escalated to levels well beyond their reach that it was high time some action was taken. The new amendment to the income tax ordinance therefore has the capacity to reduce the real estate bubble, however, time will tell if this objective has been met. Be that as it may, Business Recorder fully supports this levy and appreciates the efforts of the ministry of finance and the FBR in this regard.
Source: Business Recorder