The Finance Bill 2016 caught everyone by surprise in the real estate sector, especially persons with black money and short term speculators. For them it is a nightmare that FBR can value the properties at fair market value, which has taxation repercussions regarding source of investment and thereafter can levy Capital Gain Tax (CGT) if the asset is held for less than five years. The whole real estate market is in shock and allegedly, in some major housing entities the business is almost at a halt. There are visible signs that strikes are being arranged in some major cities of Pakistan but so far no defined agenda in terms of demands has been made public especially by any real estate dealers association.
Interestingly, the hearsay is that the two major amendments would discourage foreign remittance to Pakistan. If overseas Pakistanis remit their money through normal banking channels per Income Tax Ordinance 2001, they are exempt from tax and the remitted money is treated as purely “white”. In fact, previously, when an overseas Pakistani with “white” money used to buy an asset and get it registered at Deputy Commission (DC) value he was willingly or unwillingly converting part of his “white” money into “black” money.
As an example, an asset bought for PKR 10 Million and registered at a DC value of PKR 2.5 Million would transform an overseas person’s major chunk of money i.e. PKR 7.5 Million into “black”. This was totally undesirable but he had to follow the market practice by getting the sale purchase agreement registered at the DC value. The beneficiary could be the other party who in most cases does not have enough “white” money to complete the transaction. Therefore, the concern should be for people who have untaxed money but not the overseas Pakistanis who have, in fact, only “white” money.
Secondly, the government is to levy a 10% capital gains tax on the gain between sale and purchase price if the property is sold within five years of its purchase. This amendment is also geared towards curbing speculative trading which the majority of the overseas Pakistanis do not intend to undertake due to their remoteness and investment strategy. Hence, it barely impacts overseas Pakistanis and even in case a 10% tax is paid on the gain, it should be acceptable considering the high tax rates on capital gains which they are bound to pay in most of the foreign countries of their residence, except for middle east.
The 10% tax slab is rational considering that on other business incomes, the applicable rate is around 35%. Hence the applicable rate is still lower than the tax rate levied on normal business income. Conclusively, the overseas Pakistanis should consider these aforesaid changes in the tax statute a blessing in disguise as it will allow them to properly make their declaration and let their “white” money remain “white” instead of being forced to convert it in to “black” money, under the older system. However, I would advise overseas Pakistanis would be to at least stick to the below:
1) Use normal banking channels to remit their money into their bank accounts from overseas. Keep the relevant documents in their record for future purposes. The documents in order of precedence would proceed thus: realization certificate issued by their Pakistani bank, bank statement from Pakistani bank and remittance receipt of overseas bank.
2) If you intend to purchase the property it should be purchased with “white” money. The sale-purchase agreement should be on the fair market value of the property and not the DC vale. The agreement has to be signed by both parties and should not be left blank. If you are a filer, you can declare it, or else keep it in safe record for future use.
3) In case you intend to sell a property, hold on to it until the dust has settled and the issue of capital gain is cleared. Else, the maximum you have to pay is 10% of the gain between fair market value and purchase price.
Federal Board of Revenue (FBR) remained helpless especially during the last five years and was made to accept DC values owing to FBR’s own circulars wherein the aforesaid were binding. FBR tried to suggest changes in the statutes which included desperate measures including proposing to the government that FBR could acquire the property at 25% additional price compared to the registered price. But government rightly struck down these proposals as it could have created panic in the market. However, the recent amendment regarding fair market valuation and levying of capital gain if an asset exchanges hand within five years of its purchase merited consideration which the government approved through legislature. The implications of these two amendments are far reaching:
Fair Market Value: If the transactions would be registered at Fair Market Value, the seller would have to pay CGT (within five years of its purchase) and purchaser would have to produce “white” money to complete the transaction which will be an uphill task. Else, the tax implications, including levy of evasion penalties and additional tax, could eat up a major portion of the market value of the asset under transaction. The measure would definitely discourage “black” money holders who were hiding their wealth in real assets.
Capital Gain Tax (CGT): The levy of CGT withholding period less than five years is an attempt to discourage speculative trading. Currently, speculative trading had resulted in creating artificial hike in prices, making the possibility of building their own home an unattainable dream for ordinary Pakistanis.
Surprisingly, the real estate dealer associations have not yet come up with their official demand of charter. I wonder, what could a rational set of demands even be? Do away with fair market value or abolish the holding period of capital gains tax? Both of these do not hold merit for serious consideration in view of the fact that the provisions have been included to check “black” money and speculative trading. Hence, what could be the options at hand and what could be the possible outcomes?
1) Stay from Higher Courts: Apparently, there is no cogent reason as the bill has been passed by the National Assembly and the intention of legislature is clear – discourage black money holders and curtail speculative trading
2) Street Protests and Hold Off: Unless there is a genuine and rational agenda, it will be difficult to muster support from ordinary citizens, apart from the stakeholders which will be represented by real estate agents. The government may not be pressed for revenue loss due to halt in business considering their long term goal. Per Daily Express clipping by Shahabaz Rana dated July 14, 2016 Naveed Zafar Ashfaq Jaffery & Co, a chartered accountancy firm has revealed that there is PKR 7,000 Billion of “black money” in the real estate sector. If taxed properly, there could be one time wind fall tax collection and recurring thereafter.
3) Negotiation with the Government: Apparently, this will be the desirable and best route forward. FBR is in a strong position and it is expected it will not budge with undue demands. There could be number of suggestions but I would suggest the following:
a) Tax Amnesty: Government has announced tax amnesty schemes a number of times in the past, the most recent one, for traders, being introduced just a few months back, but the response has always been lukewarm. However, here the situation is different wherein noose is around the neck of tax evaders and it will primarily be at their request with only available and acceptable solution. It is expected that FBR will take advantage of the situation and will not offer amnesty at any rate lower than 10% of the amount to be made white. The aforesaid is the rate which FBR has normally used as a benchmark rate for amnesties declared in the past two decades and even as recently as few months ago for traders. The impact of this would be enormous for the economy wherein huge amounts of tax will be collected once and then perennial collection would continue based on the market value. If we agree with the number quoted by Express Tribune then 10% of PKR 7,000 Billion would translate into PKR 700 Billion tax collection. It is important to mention that the current year collection of FBR was PKR 3,104 Billion and hence it would translate into 22.6% of the tax collection for current year and even FBR would not have any issue in meeting Fiscal Year 2016-17 target, which is fixed at PKR 3,621 Billion.
b) Capital Gain: Reducing the holding period from five to three years would be reasonable and acceptable to all the parties. Earlier, it was two years wherein after this period there would not be any liability under capital gains tax.
c) Giving Powers to FBR to Inquire the source of Foreign Remittance: The Protection of Economic Reforms Act 1992 debars FBR from requesting foreign exchange remitters to disclose the source i.e. who remitted the money and whether that person had the financial health to remit that money. The lack of these powers has in fact caused more damage to the FBR than any other restriction as it has robbed Pakistan of trillion of rupees in terms of tax collection ever since the act came into effect. Practically, all sophisticated investors who are fully conversant with legal implications send their untaxed money through “hawala” abroad and get it remitted to Pakistan statedly at less than 5%. This is a big loop hole in the system and has to be plugged immediately. After all, if the remitter is genuine then he should not have any issue if his financial health is probed. But apparently, due to known reasons to everyone in terms of beneficiaries, no government has ever shown willingness to give this power to FBR. In this case, if this power is not granted, even if amnesty scheme is declared and implemented, it will not meet set objectives. Just consider, if the rate for amnesty is 10% all sophisticated investors will be inclined to whiten their money at a reduced rate and hence exchequer will be robbed of the requisite revenue.
Conclusively, the changes in tax statute regarding real estate taxation is a blessing in disguise for the overseas Pakistanis who can do transactions with their “white” money freely and without any hassle. However, these measures are a nightmare for “black” money holders and speculative traders who had become used to enjoying unprecedented gains in short time frames. The government and FBR has got a golden opportunity to set things right, and with the assistance of stakeholders, they can come up with a viable solution of which a tax amnesty may be one. However, it is equally important to make amendments in the Protection of Economic Reforms Act 1992 by giving the FBR power to probe the source of remittance to distinguish between genuine and “hawala” transactions.
Related News
One overlooked aspect is the increase in payable taxes from dc rates which are at 1/5th of the Fair Market Value would mean it would discourage people and/or investors from trading or purchasing properties unless absolutely necessary. A way around it would have to been to determine FMV for a particular block in different areas just like DC rates they’d determine the minimum plot value in a certain area which would still be a lot higher compared to the previous DC rates. The cost of purchasing shouldn’t be levied at a such a high rate. Increase the DC rates to near the FMV rates do it in detail if necessary which would take care of all the black money involved. Secondly to not discourage people with white money the CVT, Stamp Duty, Advance tax altogether should be levied at not more than 2% of the FMV which will still produce an abundance of tax revenue compared to the current situation without the increased risk of capital flight abroad. A certain shock will be suffered by us realtors as the real estate will go down overall but it wouldn’t discourage foreign or local investment with white money. Once the rates dip after the exclusion of 3 trillion of black money in real estate it would certainly start growing naturally instead of the artificial prices that currently prevail especially in speculative areas.
im only interested.. ….would it be beneficial for a salerid person like e me who is saving hard-earned money to get a single plot for future house….. currently it is impossible to purchase even a 5-marla house in an average society of lahore (as it costs around 85-95 lack) -despite of a seemingly high-average salary…….
Fully endorse and appreciate your views, Mr Umer Shehzad. Due to space limitations, I purposefully did not touch upon the mechanism of valuation of Fair Market Value and related required decrease in taxes, which for sure are part and parcel of the topic under consideration to make it success for all the stakeholders and more importantly for the country. The flight of capital due to globally depressed markets, money laundering and terror financing issues, currently may not be as much of a concern as the damage done by Economic Reform Act since 1992 by not allowing FBR to probe into source of remittances. Infact, none of the political governments want to accord this power as this is being consistently abused by most of the sophisticated investors – people with deep pockets.
Dear Aamir Ali shb thank u for posting good discussion and useful information. In ur opinion, when will the dust of this fin act 2016 settle to make things clear. Last day a meeting of dealers/ real estate reps was supposed.. any outcome of that meeting?
From ur discussion i pick point that main objective of this act was to bring down the speculators and black money/ tax evaders. But, it is also effecting the hard earners who want to save something for future. Investment opportunities are already very limited. How do u suggest these people…
One meeting cannot resolve such trick and important issues. I am not in a position to guess a time frame but resolution cannot be delayed unnecessarily. I agree that investment opportunities are limited in Pakistan and real estate was an easy and safe bet. My view is irrespective of the terms of settlement among the stakeholder, the real estate market is bound to grow but steadily and with stability which is in the interest of all concerned parties. Need not to worry, just cheer up.
Another important thing to be mentioned is that the at least Punjab Finance Bill 2016 has made CVT and Stamp Duty to be mandatorily calculated at DC rate and not on the “value of consideration” which earlier was the case. Similarly, if one is a Filer legally there is no impact of Advance Tax as the same is adjustable. FBR wants to intentionally increase the cost of doing business for For Non Filers and hence the rate has been increased to 1% and 4% respectively for Seller and Buyer and these taxes are applicable at Transaction Value and not on DC rate. All the different aspects of the issue has to be tackled and closed in one go else all the stakeholders will suffer and the only beneficiary will be big fish; black money holders and speculators.
Good write up. I think it will also help genuine buyer to enter in the market who was discouraged due to speculative transactions.
During the past 2-3 years, money was invested in open plots, this policy will now increase construction business to meet housing shortfall.
Agreed – that is the positive aspect of these amendments; target black money and speculative traders. Please note that for builders taxation provisions have been added based on category and square area and that too with the consent of the builder associations. This will bring these entities into tax net and regularize the business taxation in this category.
How would this affect house builders? that buy a plot, build a house on it and sell as fast as they can. that 10% tax would be on the difference between the house sale price and land buy price?? It’s all very confusing
It’s good that more tax will be collected but the change should be GRADUAL rather than SUDDEN
Government should bring DC rate close to market value over a period of 5 years so that people will get adjusted to it
It will bring more harm than good if government is pushy
Tax should be collected by the will of the people rather than a knife under the neck
Bringing DC rate closer to market rate would be the best solution. But not sure if it will happen considering DC rates are controlled by provincial governments whose interests genuinely may not overlap with Federal Government. As an example, provincial government along-with other things has to make land acquisitions and pay compensations, whether it would be willing to increase these to the extent of market value and increase its acquisition cost, Further, as per my understanding at this stage for FBR, the matter under consideration and priority is black money and speculative trading and not tax collection. I guess one way could be to have parallel table of market rates issued by SBP and then agreed by stakeholders before notifying those.
Is sending money through Western Union cosidered as proper channel?
For the benefit of all, please note the relevant provision from income tax ordinance 2001 regarding remittance:
Section 111 [(4) Sub-section (1) does not apply, —
(a) to any amount of foreign exchange remitted from outside Pakistan through normal banking channels that is encashed into rupees by a scheduled bank and a certificate from such bank is produced to that effect.
If the western union conform to the above i.e. go to western union recipient branch and request for a certificate as banks issue certificate called Proceed Realization Certificates which conforms to the above and is acceptable to tax authorities. Not even sure whether western union falls under the category of bank. Else, ask some tax consultant to have a definite answer.
Please note that applicability of tax laws is through strict interpretation with no leeway for the department to interpret. A small mistake at the end of the taxpayer in the modality of transaction can be disaster considering that all the proofs shows that the money was brought into Pakistan from outside but if it does not conform to the above it can unnecessarily create issue for a genuine overseas Pakistan. So be diligent and careful.
We are living abroad for decades. Sent lot of money through banking channels but never asked our bank for such certificates! Now all of a sudden we need to file tax returns and all of a sudden we need all those certificates! That confirms my statement elsewhere how fussy it is to file returns and claim our refund on advance income tax. Why can’t the FBR gets this info confirmed by the banks themselves? Why cant we have a simple system which is integrated with financial institutions?
The process of getting PRC from banks is not straightforward and can take many weeks. Overseas Pakistanis have limited time when they come to Pakistan, it’s difficult for them to even complete property transactions in time, how will they run around gathering piles of documents? Instead of facilitating them, government wants to rob them. Basically the noose is for overseas Pakistanis, who will be the most vulnerable group. Corrupt mafia, and black money thugs will never be touched by FBR. Notices and harassment will only be targeted to overseas Pakistanis.
Correct PRC may take time to be received as it is issued by the bank which has received the money / correspondence bank, from overseas which in number of cases is a different bank than where your account is. However, getting an updated bank statement is not a time consuming affair to be kept in your record. I guess ideally overseas Pakistanis should have some kind of a well coordinated forum to present their genuine demands and concerns so that government and its policies address these and give them some kind of privilege.
good one amir sb.
Thanks Hassan Sahib. Await your critique to have a healthy discussion and consensus at least on the forum.
It seems GOV hired well educated ppl to make things more complicated. Pakistanio get ready for Qurbani.
Thanks for your partial positive comments. Please note that government has nothing to do with the article written by me which I own as your statement seems too generic. Believe me, sensible market correction and adequate safe guards are for the interest of whole real estate market stakeholders. By the way, can we discuss the contents of the article as to what is debatable and factually not correct?
Thanks a lot for such a detailed and informative writings.
Your writings will abate many doubts,and help many overseas investors thanks, and keep on updating about the new measures in this regard.
yes genuine white money buyers should prevail , and the black money crooks should suffer (brought to justice), and this must be the spirit of our gov.
Just one query , and that is ” what about the case of some one overseas ,who purchased a piece of land 3 years back at DC rate with his white money , and now new market value of the property increasing posing extra tax on such land? will he pay the extra tax according to new valuation on this 3 years old piece of plot bought with white money???
Thanks and your comments are heartening. There should be a difference in treatment regarding law abiding and law offending citizens of the state and government should ensure this. Let us wait to see the final shape of the amendment and then a comment can be made on your query. However, as things stand currently which are not clear as rules have not been issued it, for understanding purposed it will be @10% of the difference between sale and purchase price. However, if government reduces the capital gain holding period from 5 to 3 years, then it will be Nil. Just wait for few days for clarity.
Overseas Pakistani is not required to file income tax return if he don’t have any Pakistani source of Income as he is non-resident as per the requirement of section 115(3) of Income Tax Ordinance. So many of the Overseas Pakistanis are not filer although they have source of money invested in real estate. So as of today they don’t have any declared value of their property as they are neither filing returns nor wealth statement. Will FBR ask them to file return when they are not required to file ?
How FBR will determine that their property value is understated when they don’t have any declared value ?
IF they are making money from investments in real estate in Pakistan, don’t they have a Pakistani source of income? If yes, shouldn’t they be filing tax returns?
The above is a question, not a comment. I’m not sure about the laws on this subject.
Your query is very pertinent. Please go through Section 114 (1) (iii to vi) regarding who is required to file a return and see its applicability. Further, if applicable, FBR can request return under section 114 (3) (e) and section 114(4) of income tax ordinance from non filers. The Wealth Statement is the document which will tell which properties/wealth one has bought / sold and at what price. If there is no record / being a non filer, then the first time filer can plan accordingly what, how and at what price. But these have to be backed up by documentary evidence. Secondly, FBR can do cross matching (if they really want to audit you) i.e. whether buyer and seller has declared the same numbers. These are tricky matters and input is to take a professional advise once return and wealth statement is to be filed voluntarily or enforced. Hope it answers your query.
Good write!
I need further clarification on remittance. What if the money was sent from an Overseas Exchange Company to a bank in Pakistan… It must be considered legal against the ordinance that you shared. isnt it?
Agree largely with your views, and that’s pretty much what I’ve been saying on this forum for the past few days as well. A reduction in capital gains tax makes sense as the proposed basis for calculation mechanism, i.e.difference between sale at current market value and purchase at previous DC value (which the government itself had previously allowed) creates an exaggerated CGT. However, it could also be argued that this is the price for whitening the money.
I do feel though, that the argument for sticking to DC rates, or for a gradual transition to market rates, are spurious. We all know that the previous practice suited only individuals with black money, as they were able to declare an asset at a fraction of its value. Not only that, but we all know how payments were being made in this market. Sellers would only receive the official amount in their own name. The remaining (which was the bulk) was being paid in the form of pay orders of less than 1 million made out to various names given by the seller. If this is not money laundering, then I would like to know what is? And I’m struggling to understand how anyone can logically argue for this practice to continue.
Your article also brings a lot of clarity and sanity to the issue of overseas investors. One of the fears being propagated by the real estate community is that these measures will lead to a fall in remittances, whereas the reality is that the bulk of this investment comes in the form of unofficial Hawala transactions, which remain outside the banking system and do nothing for the country’s foreign exchange position. This has been especially true in the past few months as the UAE market has slowed down, and money has come through hawala to spur a black-money driven increase in prices. We are all familiar with cases where the buyer has brought the entire payment in a suitcase full of cash.
The legislation has been badly needed for some time, and hopefully will lead to a flight of black money from the market, bringing prices back to a real level. Real estate will always be a good investment, however it will not remain a haven for black money, as by recording transactions at fair market value, FBR can also ask a question about the source of funds being used for purchase.
Probably the best economic decision the PML-N government has made in its tenor for the long-term benefit of the country, and I speak as one who is not a supporter of the party.
Thanks for such positive comments. Appreciated. However, any objective discussion or thoughts would be a value addition.
Aamir Sb – As I’ve stated in my response above, I feel the CGT aspect should be rationalised becasue the current structure would see an unreasonably high CGT levied on the seller. As far the holding period is concerned, I am also in favour of a gradual increase from 2 to 3 years.
Someone had asked a question about difference between assessed value and transaction value. That difference is present even now in purchase cases which involve mortgage. The SBP approved valuator’s price is generally about 10% lower than the actual transaction price, and this is what the Bank uses in deciding the LTV ratio. I think if the market value were to be used as the benchmark, then both parties would be better advised to mention the transaction price in the contract, rather than the assessed value. This will lead to slightly higher taxes but will do away with the option of having the balance amount being transacted as an off-the-table handover and would keep the entire transaction white. The valuators will generally give a conservative estimate which will be roughly 10% below the actual price, so this will remain a common enough occurrence.
The flow of black money into the sector, which has been driving the market, must be checked for the long-term benefit of the economy. If this results in a price correction, so be it. In the long term, property will remain a good investment if based upon analysis of proper fundamentals.
Dear Mr Arif. Thanks for your valuable input and sharing your thoughts. For sure property will remain a good long term investment.
it is all crap now ppl are trying to convince us of “black money”. look who is talking. The viable option would be Increase in DC value rates, but why didn’t govt see it, because they not only want to destroy the property sector but will also decrease the remittances to Pakistan. over all huge dent to Pak economy. they have their business set in UAE and in west. we are here to suffer because of their poor planning,
.Respect your opinion. We should vouch for giving powers to FBR to inquire about the source of remittance so that hawala remittance is discouraged, at least this loop hole is plugged. By the way did not understand, why remittance would decrease?
Dear Aamir ,
Do you think if this rule is applied in UAE market, it will have a positive impact? Asking source of inbound remittances? Money flows out anyways but after this new rule, it will stay out as well. May be it will benefit Ishaq Dar businesses in UAE but not Pakistan as all those who got black money will try to stack it abroad as well.
Agree with you i also noticed there are some new entries on property related forums just trying to convince…Wake up guys its 2016 no more Mughal a Azam and Darbarizzz
Thank you Aamir for such great article.
I agree it will help genuine buyer to enter in the market and discourage speculative traders that have already disturbed genuine buyers in last 3 years
Also I believe just foreign remittances don’t help economy however documented economy will definitely contribute.
Keep sharing valuable thoughts please
Thanks for the appreciation. For sure, will share my thoughts and views with the forum members.
Excellent analysis
Good that your rated the article high. Hope it was useful.
Thx. for your response. So being non filer every overseas Pakistani should declare actual value instead of understating, for sure value would be backed up documents to rationalize capital gain tax in case of selling in 5 years of purchase.
Please note that currently for a non filer purchaser the advance tax will be 4% of the transaction value. Always, better to consult a professional tax person for tax planning and filing a return. |But at the end of the day every decision has pros and cons. Let the issue be clear and then a better and informed decision can be made.
niece article….will this decision bring property prices in low..will downfall in prices start..
i want to know who will decide property value.. valuators assigned by SBP or owner of the property. for instance SBP evaluators evaluate property @ 1.5 (M) per mrla but owner insist for 2 (M).. what would be solution..is it mutual understanding of buyer/seller to pay difference of 0.5 (M) and registry should for 1.5 (M).
Thanks. These will be clear once the relevant rules are finalized by FBR. Just wait for the settlement of dust.
Amir Sb, very delighted to hear the tax mechanism in Pakistan and your article clearly elaborate the facts of the same.
Most of the investors invest in property for short term and earn sufficient income with limited time period, in Pakistan, tax on property is very essential and beneficial for Govt and as well as common people, personally I am very happy for this amendments, as I am searching flat from last three years but unable to purchase it due to hike of prices, investors, artificial increase the demands of property and in actual no any demand in such speed.
in my view, common man will be very happy due to amendment of these tax laws.
Thanks,
Thanks for your comments. If we will not support desirable measures to control black money and speculative trading then only few will benefit at the cost of majority. Secondly, the market will never be real and stable.
salam o alaikum , dont you think that the HIBA system will grow up and undertaking for both sellers and buyers will look for it , instead of paying taxes.
Too early to make any comment. Let things settle and then a view can be formed.
Nice article Amir Sb,
how you would relate the current taxation policy with Baharia Town Karachi or any other scheme which isnt leased to owners yet and all buying/selling is undergoing within their system and no court interaction is required at this moment.
You have to assess the sources from where FBR gets the data of transactions. If the transaction is highlighted to FBR it will be treated as the same as far as fair market value and capital gain is concerned and related tax implication thereon.
thans for you prompt response.
seems my message wasn’t clear enough, being oversea Pakistani the source through money exchange companies to bank in Pakistan. since we have touched tis now I would like to seek your advice that this falls under fair transfer and in case any additional certificate/document is required please advice.
with source of money, my question is how current taxation policy will effect Baharia khi or other similar projects where as of now no court interaction is required and all buying/selling is carried out within there systems.
Dear Aamir,
Appreciate your analysis on the situation for oversease Pakistanis. It is a good article and let me admit, you made me agree to the point that part of our white money is drowned in the black sea under the current system. But on the other hand, tell me about;
A. Why the Govt has to rely on FBR’s authority to ask source of remittance when they are themselves unable to stop capital flight out of Pakistan? Real estate Investors were ULTIMATELY getting back the capital INTO Pakistan adding to FC reserves, but WHAT ABOUT CORRUPT POLITICIANS who regularly send very large sums of money out of Pakistan which stays in Swiss Banks and UAE properties and NEVER comes back?
B. Being oversease Pakistani, we pay lot of advance income tax and WHT to the Govt. We are non-filers being oversease, as it’s still a big headache to file the returns every year. But even we do, CAN WE GET A REFUND FROM FBR EASILY? No, to my knowledge, people are suffering since ages without getting any refund. I can’t wait for my retirement to go back and open my own business in order to enjoy the benefits of advance income tax paid!
C. What about stock market? Is it not a similar sea of black money? What are the regulatory measures taken by Govt to streamline this sector?
D. With very low interest rate on National Saving Schemes, Bad energy situation & labor market in Industrial sector and general security situation in the country, we oversease Pakistanis were having only one sector to make safer investments. If the Govt does not realize it in time, we turn to other markets as it’s a global village now!!!
totally agreed with tariq, but they will not touch Stock Mkt or hawala / hundi business because it benefits them. Till to date, they are unable to justify their trail of money from Pak to UK / UAE.
Your observations and comments are valid. My input would be to have belief and struggle for strong institutions which in the instant case would be FBR, FIA, NAB etc. These institutions should be be non political with constitutional protection to key personnel. We we keep on agitating for positive outcomes thing will change. So we should not remain idle and crib instead proactively strife for betterment.
amir sb. awesomely written i believe every one who had any confusion about taxes should read this. you have carefully crafted it and have touched all aspects.
i believe new taxes on real estate could not be described better then this article. i am looking forward on your analysis as market unfolds and about new development.
people like you are pride of Pakistan no matter where ever you work keep on doing the good work and educating people. this is marvelous work from you.
you are new positive addition in zameen blog writers
Thanks and appreciate you positive remarks.
NS’s property value approximately declined 15% in result of British exit from European union so now baray sharif mian sb. assigned task to his personal family munshi ishaq dar hrto recover these losses of sharif family through unjustified taxes on Pakistan real state sector.
Respect your views.
I am an overseas Pakistani and have invested my 100% white money in Pakistan real estate through legal ways. But still, my question to all the supporters of this amendment is WHY SHOULD WE PAY TAXES when the government is FULL OF CORRUPT and SHAMELESS people? It wont make a difference to our country if we pay full income tax or dont pay at all. If we pay more income taxes, these shameless people will have more of loota hua maal will not help develop country at all, a recent example is the balochistan’s minister whose house was full of loota hua maal exceeding 700million. and thats just peanuts when you compare to ministers etc. in punjab, sindh, kpk. you can google Indian high court judge has clearly said DONT PAY TAXES if the government fails to eradicate corruption.
We perhaps don’t know that this amendment will not harm the WADERE which are the real CANCER to this country. For example, rana iqbal has THOUSANDS OF ACRES of land in Bhaipheru area, all acquired through ILLEGAL MEANS, BLACK MONEY AND BADMAASHI, and that’s just one example out of thousands. The tax evaders in DHA, BAHRIA TOWN etc in big cities are NOTHING, not even 5% of the money looted by these PAINDU WADEREY. Lekin afsos, kisi ko in basics ka ni pata khwabo k ideal world mai reh rahein hain, ground realities ka nahi pata.
Corruption is a reality in our beloved country. But we have to stand against it and strive for betterment. Let us focus on the contents of the taxation issue and related article.
Here is a joke
I being an overseas Pakistani, living with family and having strong desire to own a house back home have single chance per annum (during annual leave) to try my luck. Every year I was short of some money, so I have to save more and try next year. After years of hard luck this year I got loan from bank and searched for a house. Could not find house of my choice and could manage only to buy two plots due to short leave and planned to come next year to sell one plot to construct the other. How to find the way out of suffering .
You can’t plan under a non consistent system. Ha ha.
Fully agree. Policies at any level should be consistent, long term and based on rationality.
I am in the favor of this tax because i want to stop investors who invest black money in real estate and buy lot of homes and plots and increase the property value by Satta. in these days a white collar man can’t afford to buy a house even a plot in Karachi. You know just a 200 yards residential plot cost up to 20 million in north nazimabad. How Genuine Buyer / Normal family can afford own house if investors do Satta in property with there black money. So i want property prices go down so every one can afford to buy there own house!
Property price will never come down its only a dream!…Black money ppl will play even with tax or without tax.
Salam
I reimburse money thru Habib Exchange from Toronto, Canada. They say it is the legal way and not HAWALA. How can I confirm I. What probing questions should I ask them. The money I send get deposited in my Father’s account in Karachi in pak. rupees
Thanks
Tanvir
As indicated in the article get a copy of the proceed realization certificate from the recipient Pakistani bank and / or bank statement for your permanent record.
Great article. In comments section really glad to see literate pakistanies suggesting corrective measures in improving recent property tax.
Thanks for the positive comments.
Thank u…
You are welcome.
Dear Mr Aamir,
I do not agree that overseas Pakistanis were converting their money into “black”
DC rates and tax calculation on DC rates were applied by the Government not by the real estate agents or overseas Pakistanis.
However, we as Pakistani National should pay the taxes if only the Leaders set the examples for public, rather hiding taxes applicable to their business and involving into money laundering and establishing their own businesses outside Pakistan.!!!
Dear Mr Ali. Thanks for your views. However, please note that pto June 30, 2016 DC Rate was not binding at least for Punjab Government which levies Stamp Duty and CVT. It was the “value of the consideration”. However, the norm in the market was to follow DC rate. Similarly, for FBR advance taxes and Capital Gain even before June 30, 2016 and after the Finance Bill, the calculation is based on “value of consideration”. So basically, it was the buyer and seller who were signing agreements and doing transactions at DC rates for detailed reasons mentioned in the article. The second point is valid and I suggest we make all possible efforts to get the things right in what ever capacity we can. Neither giving up nor letting the field open is an option.
nicely clarified!
on one hand where we all overseas pakistanis are happy on the fact that it will somehow limit the injection of black money (hope that there isn’t any other hidden agenda with this new tax policy) on the other side overseas pakistanis are also a bit afraid as real state is the most easiest and profitable sector where we were investing. mainly overseas are genuine buyers and keep there property for longer periods hence shouldn’t be worried on new tax as its applicable if property is kept less then 5 years however real problem would be the increasing supply compare to demand which might occur due to investment in other sectors.
You may be right there can be supply and demand issues but at least if there is a curb on speculative trading and black money it would stabilize the market and put it on sound footing. In long run real estate is bound to grow and historically same is the case not even in Pakistan but globally.
Good write!
I need further clarification on remittance. What if the money was sent from an Overseas Exchange Company to a bank in Pakistan… It must be considered legal against the ordinance that you shared. isnt it?
Inward remittance complying with the relevant clause into Pakistani scheduled bank would be “white” for tax purposes.
Very informative post and very nice discussion going on. I would like to add my thoughts to it as well.
All who belongs to Real Estate business and also the buyers like me who has the money and willing to spend as well on taxes and all that crap going on but my point is why we are just only discussing about paying tax but not about the usage of it. We the money owners are paying for our housing, living, education, health, pleasures and even for our sorrows (extra payment for finding grave ‘Qabar’). I have read tones of comments on tons of forms discussing about the new tax system. But unfortunately no one is willing to even think about why we should pay tax? where this money will go and who will enjoy the benefits from the tax money?
Will this money spent on schools?, Hospitals, or for the betterment of all people living in this country?
Or
This money is going to spent on the pleasures of ruling politicians, retired politicians their kids or even on their dogs? Come on guys wake up its not new taxation rule in pakistan its Bhatta for politicians and their kids…
Discussion should be ok we are willing to pay tax but who will do the accountability for this tax money?
All of sudden reading comments from this forum I recalled a story I used to listen from my elders about a king who introduce a new tax law of beating everyone with a shoe twice while entering and leaving the city. And I am sure everyone must have heard about the story.
Come on guys get together and raise a voice about how and how will spend this tax money? And show the officials that yes we are willing to pay fair tax but what will be the usage?
I hope everyone will at least think once about my point I tried to raise here.
Right on bulls eye. We need to be a stakeholder in governance of our country and raise voice / do practical measures where possible to set things right. It is the right of the taxpayer to ask whether the collected tax has been spent diligently. However, please note that sadly the revenue collection proportion of direct taxes is not at healthy level if we exclude withholding tax collection. That is why as some one on the forum mentioned that there are only around 1 Million taxpayer who file returns and believe me if you look at stats most of these returns are either filed at below taxable limit or at marginal income.
Dear Amir Sb,
i read on a document online issued by ILYAS SAEED & Co ,TAX CARD 2016, according to which, the CGT on
1 -Where holding period of Immovable property is up to one year = Rate of Tax is 10%
2 – Where holding period of Immovable property is more than one year but not more than two years = Rate of Tax is 5%.
3 – Where holding period o Immovable property is More than two years = Rate of Tax is 0%
Could you please shed the light on this and confirm if this is correct ? and the CGT is for land which you sell within 2 years after purchase and if sold on 3rd year there is not CGT applied.
Dear Basit. What you have referred to the law applicable upto June 30, 2016. After the aforesaid date through Finance Bill the rate is flat at 10% of gain and holding period is 5 years. That is if you sell within in 5 years of purchase 10% CGT will be applicable. Hope it clarifies.
I have a question regarding transferring some land which is not selling but kind of legacy and giving as a gift. What taxation applies in this respect?
It is better to consult relevant authority or take professional advice regarding transfer charges for your specific transaction.
What I can add is regarding value of the gift for calculating CGT at disposal. Gifts / Inherited property cost to recipient is NIL. However, when the recipient disposes off the property the value to be used in as the cost at the time of receiving gift / inheritance is not NIL but as per Section 37[(4A) is as under:
Where the capital asset becomes the property of the person —-
(a) under a gift, bequest or will;
(b) by succession, inheritance or devolution;
(c) a distribution of assets on dissolution of an association of persons; or
(d) on distribution of assets on liquidation of a company,
the fair market value of the asset, on the date of its transfer or acquisition by the person shall be treated to be the cost of the asset.]
Dear Aamir thanks for your valuable suggestion and information provided.
Also I have another question regarding a plot bought by an overseas Pakistan (made the payments) But the land/plot is on his another family member’s name who is not Overseas Pakistani. How the taxation will effect if need to sell the plot. Thanks
No difference in taxation treatment regarding CVT, Stamp Duty, Advance Tax and Capital Gain whether is overseas or resident Pakistani.
Correction in my question. Taxation regarding filer and non filer. If Pakistani Resident family member is not a tax return filer. Also if he is an employee in a firm and he is under taxation system how will it effect the scenario I have mentioned in my previous post.
Where the market is going ? is the trend rising or falling ?
Respected Mr. Amir,
I think the story is not as simple as portrayed. A system which is in place for over half century can not be overdone all of sudden. Govt understand that this will ultimately hurt their interests as they don’t want bearish activity in any sector specially when political mileage and controlling things remain on the card.
DC rates are not formulated by public, but the government. If FBR could have sincere in collecting tax then how is it possible that in a country of 200 million, tax payers are only less than 1 million.
Regards,
Dear Mr Asif. Interestingly you have addressed me as “respected”, any specific reason for that? Fully endorse your comments especially low number of filers. To me for FBR, if its heads which includes the chairman and members are given constitutional protection of their tenure, it will be a step in right directionn to make it independent and assertive. But to-date no political government is interested in this as it may hurt their and their coterie interests. We need to vouch and raise voice for strengthening institutions not individuals.
Dear Aamir you are respectable because you have the knowledge. Actually the respect is not for people its for the knowledge which makes a person respectable…
Sadly, it seems that the government is going to bow down to special interest groups, leaving black money to rule the roost to the detriment of honest taxpayers and ordinary citizens. Much hoopla about nothing.
It is absolutely hilarious reading some of the comments above claiming govt have backed out of the new taxes and valuation!!
As usual a great strategy by the Govt in getting what they want and at the same time making everybody happy!!
For everybody’s information, the new valuation is still there and even worse because now there will be fix table and no space for any manipulation! Past transactions will also be taxed(unprecedented move)! And 10% on any capital gain in future which with actual market value will be a big problem!!
i am still confused. I have a plot, which I bought last year in 50 lacs cost. However, the amount registered in property documents was 12 lacs (the DC value). Now I am selling this plot at 54 lacs (4 lacs profit). How can 10% CGT be applied on this 4 lac actual gain when there is no proof that the plot cost me 50 lacs and I just made a profit of 4 lacs only?
Changing DC to market value (thereby making money white) would mean that the transaction be booked in property documents at 54 lacs and my profit would be caculated as 54-12= 42 lacs??? (as 12 lacs was last written on the property documents as cost)….. 10% of that 42 lacs would be 4.2 lacs CGT which is even higher than the actual profit I made!!!
pls clarify how will the govt or FBR calculate the actual gain and whats the proof of that gain, thanks.
Let us defer it till Fair Market Valuation and Capital Gain Tax issue is resolved and finalized.
In this scenario, you didn’t make profit of 4 lack but PKR 42 lacs. The old price against the new price is the proof of the profit you have made, which is why many people have serious reservations against the old rates and new valuation mechanism. But don’t worry, the decision has been taken back. We are waiting for details on the mechanism finalised by the officials concerned after a successful meeting with the dealers association held a few days ago.
Hi,
I heard that final decision is going to be made on 21 july. Is that true? Is there any updates?
Thanks
Thanks for your response Samra, but I don’t think this is true. Noone in his right mind can ever make a policy by calculating CGT from the difference of old DC value with the fair market value. This would then mean that everyone pay huge amount of taxes, even more than the profits. If this was true then that would have been the biggest concern but noone has mentioned that in all the articles I’ve read so far on this issue.
Issue is right now Gov just want to collect Taxes to please IMF and improve Tax to GDP ratio and to do that they dont care what happens
But wat about those who have bought land:
For Example at 57 Lac with DC value of 7 Lac only and sell it 60 lac.
Now if they want to sell it they will have to give capital gain on 53 lac?
So 5 lac+ tax which will be high right?
Let us defer it till the Fair Market Valuation and CGT issue is resolved and finalized.
Any idea when it will be finalized. It seems Gov just make decisions without thinking
great post keep sharing I would love to read your posts 🙂
Thanks for the positive comments.
Dear All
I have just gone through the Rating section of the post wherein viewers have rated the posting. The result is interesting
Votes Percentage
Super 24 56%
Awesome 4 9%
Cool 6 14%
Alright 1 2%
Meh 8 19%
TOTAL 43 100%
A good 1/5 which is 19% here has graded the writing as Meh (which is basically the lowest grading). May I ask what is the reason for grading this article so low. At least it will be a good feedback for me which i can take positively to improve the content or writing style. Would appreciate a response to the above.
Tell me, if there’s any chance of property devaluation…..do that real buyers can get their homes..
Dears,
After reading this valuable article and precious comments it helps me alot to understand this market.
Kindly i have a query,plz clarify my my confusions.
If a person purchases a plot worth of 3 million and going to invest 2 million on construction.Now,he intended to sale out his plot in 6.5~6 million within six months.What Taxes etc he has to pay?
Need your precious comments on it with above example.
Please consult a practicing tax professional for a proper advice.
However, my view would be that the cost of the asset would be the land purchase price plus construction cost. if he sells the house the capital gain will be 10% on the difference between sale and cost of the asset. The other taxes as applicable when he purchased the plot which include CVT, Stamp Duty and advance tax.
Kindly comment if there are any slab rate application of these taxation amendments like application on 3 Marla, 5 Marla, 7 Marla, 10 Marla etc., or there is “SINGLE KNIFE” for all varieties.
As I understand, all will be treated same with reference to capital gains tax and source of investment probe.
Dear Sir, Thanks for your update.
I purchased 5 Marla Plot in Johar Town Lahore in 2003 for 5 Lac and constructed house on it during 2003-04 with cost of 20 Lac. Now I wish to sell that property for 7.5 ~ 8 million. What will be the tax liability on my account and the proposed buyer?
Aamir Ali Sb, please check and your accountant in Pakistan and they will tell you that most of taxes paid to Govt by individuals are NOT REFUNDABLE so if you are a filer and buy a plot with declared money and pay let us say Rs. One million in applicable taxes, stamp duties, etc. Then this One Million tax paid in addition to price of the property will gives you NO advantage because its NOT REFUNDABLE. Secondly if you sell it within 5 years to marry off your daughter or son you pay more taxes. I say Govt will make more money than property owner !
Amir Ali Sb, in case of overseas Pakistanis money is sent to their families on monthly basis usually by electronic transfers paid by dealer or bank by presentation of CNIC, these dealers or banks do not issue any PRC (Foreign Remittance evidence) Bank’s letter to individuals so in case of middle class it is extremely difficult to prove remittance evidence. Even if they do have evidence, it does not give them any relief in taxes !
Object of Govt is to squeeze the pubic to collect additional taxes to pay for loans they have been taking for past eight years. Govt’s of PPP & PML in combination have taken very heavy loans from IMF, World Bank, ADB, local banks and every available source.
Since the object is to collect additional taxes and Govt have targeted property sector to collect speedy NON REFUNDABLE taxes (just to show IMF that they have found another taxable source to pay back their loans) It’s true that DC rates are undervalued in DHA areas because DHA buy bare land and DC rates are based on available amenities. DHA charge high cost to plot owners to develop it (water, electricity, sewerage, some areas no gas) some DHA areas in Lahore are just land fields nothing except bushes. Coming back to DC value, Govt admit that Provincial GOvts in Punjab & Sindh ignored and forgot annual revision of DC values so now Govt must take a soft approach to review the DC value rates by +/- 30% this year and then revise the DC rates on yearly basis and within next 3 years the real property rates and DC value rate will become nearly the same, which will provide relief to every party. Furthermore two years period must remain to allow freedom to sell under developed area property.
I may add here that in case of Karachi specially Saddar area (apartments & offices) the DC value is 50% HIGHER than actual market value which must be reduced to market value. The DC value, CVT, stamp duty on small apartment / office are over Rs.347,000 so for 500 sq ft office worth about 1.8 million you shall pay be paying almost 25% taxes and charges.
Property is not always profitable you can loose big chunk of your money if the allotted plot is in bad area, you can loose big money if the housing project society goes under water during normal rains or society land become disputed and your money is stuck for years. Will FBR Refund the money to the people who genuinely suffered at the hands of property developers.
All your questions are pertinent and are genuine. Please note that I am not a spokesperson for FBR and am just an ordinary citizen like most of the people on the forum and definitely wants betterment of things in the country which under the topic under consideration are black money holders, speculative trading and corruption free & efficient FBR. Item wise please note the following:
1) Advance Tax on Property Purchase and Property Sale adjustable. You can yourself check from the income tax ordinance but for ready reference I have reproduced the same: Section 236C(2) and Section 236K(2) The Advance tax collected under sub-section (1) shall be adjustable. Not sure why a filer will not claim this credit unless he does not want FBR to probe into the transaction. For Non Filer, it is correct he cannot claim unless he becomes a Filer.
2) I fully agree that overseas Pakistanis do not enjoy and benefit for serving the country by sending their hard earn money. infact, most of them being non filers they have to unnecessarily pay taxes which are mostly adjustable but under their scenario it is difficult for them to claim. I suggest it is high time that overseas Pakistanis demand privilege for their contribution of white money in concrete shape at least in taxation matters. You are right that getting a PRC requires time to be obtained from the bank. But a bank statement would be fine and would suffice. PRC although is safe but if it is difficult to obtain can at least be done for transactions which involve handsome remittance and wherein on intends to create some asset. For monthly expense getting a PRC is not convenient and you will not even need that as yearly bank statement would suffice.
3) I cannot comment what is the intention of targeting property sector by the government. But for sure whether accidentally or by plan, the sector is loaded with black money and speculative trading which has led to the scenario wherein any even above average citizen cannot buy a plot of house in Pakistan. Do we want to remain held hostage by few who have black money? The aforesaid phenomenon has even sucked capital from other sectors as there is no other easy money making phenomenon even globally. I wish that the current opportunity is availed to set the things right instead of favoring few. We should vouch and strive for betterment with positivity.
Dear Mr. Aamir Ali Sb,
Clearly the purpose of targeting the property sector is to collect additional taxes to pay back the loans, most of these loans have been used for budgetary support. If these loans were used for the revenue generating projects for example Power & Gas sector then people & industry would have used the electricity and gas and Bills paid could have been used to pay back the loans and new industries and businesses would have reduced unemployment as well.
Corruption, just only one example recent case of Baluchistan secretary using budget development funds for him self and hiding millions in home and owning expensive houses and plots in Karachi and other areas is typical example of “black” corruption money hidden in property. I am very sure there must be many more cases like it but not surfacing due to influential power groups in high places.
Corruption money investment in property must be stopped and it’s duty of NAB, FIA, Police, anti corruption department, intelligence agencies to identify and catch corrupt officials.
Corrupt people can afford to pay heavy taxes on property because it’s not their hard earned money but an ordinary people and small traders saving money for few years to buy one house should not be heavily taxed. People buying first home or first plot should be exempted from heavy taxes.
Property is not always profitable one can loose big chunk of money if the allotted plot is in bad area, one can loose big money if the housing project society goes under water in normal rains or societies land become disputed and money is stuck for years. Will FBR Refund the money to the people who genuinely suffered at the hands of property developers.
http://www. dawn. com/news/1272370/realty-stakeholders-fbr-to-prepare-new-valuation-formula-for-18-cities
This looks like it’s coming to a conclusion soon. At least the ridiculous suggestion of a uniform increase in DC rates has been rejected by the government, That was a self-serving suggestion of the black money mafia which would have done absolutely nothing to check the flow of illicit funds into this sector.
Hopefully the final values to be used as a benchmark will be closer to the market rates. As an illustration of how ridiculous the anomaly is… at DC rates, a 500 sq yard plot in DHA Karachi Phase 8 is valued at about Rs. 16 lakh, while the current market rate was in the neighbourhood of Rs. 6 crore. That is 3,750% (or almost 40 times) higher.
With the adjustment of price benchmark closer to market rates, I also hope that FBR will use property transaction data to start asking questions of buyers/sellers about source of funds. If that starts to happen, that will be even more of a deterrent.
The measure to offer correction of prices (for past purchases) by a one-time payment is a good initiative which will protect investors/owners from excessive CGT.
Your observations are correct. Cannot comment with certainty unless two items are finalized; Market Valuation and Amnesty Rate of Tax. These two will determine whether the political government means business or it is just and eye washer or may be even a facilitation to black money holders to whiten their money at pea nuts.
So suppose if Govt does not change anything, does it intend to tax me by calculating 42 lacs profit (10% would be 4.2 lacs) which is just a hypothetical number. Why would anyone pay taxes more than the profit on a transaction? This cannot be true as then everyone who has brought property in last two years will face this scenario. There has to be something else.
Simply speaking, how can Capital Gain Tax (which is a Tax on profit earned on a transaction) payable on a transaction be more than the Profit made? This is not even legally correct and can be challenged in court.
Khurram. That was the reason I suggested to defer the query till the matter is resolved. However, if you insist let me respond. In your example the registered value is 12 lacs, this is the value which you have declared in the documents and paid requisite taxes. Now you sold it for 54 lacs. The gain is 42 lacs and @10% you will pay 4.2 lacs.
How can you take a plea now that you bought it for 50 lacs when your documents and paid taxes reflect that you bought it at 12 lacs. This is one of the tricky items which needs to be addressed during the current resolution.
I think one time amnesty idea was best choice
That wasn’t my choice. But in my annual tax returns, I showed this property at its actual rate i.e. 50 lacs cost. I had no choice when I was buying this property as the value showed had to be 12 lacs – as I was told that this amount is showed always. But I showed this property at correct cost in my tax returns, otherwise my wealth was not balancing in tax returns. The Govt should calculate the capital gain from tac returns and not from their incorrect and outdated DC rates which they forgot to revise over many years. This is unfair for honest taxpayers who show actual income/wealth in tax returns.
If you have declared Rs 5 Million as the purchase price in the Wealth Statement, then as I see, the gain will be calculated based on this declaration. Cheer up.
I think all payments done by exchange company are not legal. But they claim they are legal. Because they are not send by any Telegraphic Transfer.
Just you give money to them they send a message to their agent in pakistan and they transfer money in your bank account within half hour.
It means this is also some type of Hundi. which our government dont understand.
Sender money remains in sender country and black money in Pakistan transfer to your account.
AOA
Firstly,
I want to ask that if i am purchasing a plot in current DC value and going to sale it within 5 years at what amount GOVT will charge CGT ??
E.g em purchasing plot in 10 million and current DC rate is 205 million and after imposition of this tax system em going to sale my plot at 12 million , the difference is between DC value and sale value is 9.5 million and 10% 9.5 lac .
but the situation is he is earning only 20 lac and paying 10 lac to GOVT
secondly ,
Some tax practitioner had suggested to FBR that follow the property tax as it is levied in INDIA
there is no market evaluation system , there is self evaluation system if you are going to buy a property you have to give a undertaking to GOVT that i am purchasing this property e.g in 10 million and GOVT has any issue then it can transfer this property ( no one will declare DC lower then market vale )
Thank you Mr.Aamir Ali and Zmeen.com for creating a awareness among masses, since the Honorable writer is based in AbuDhabi I will try to seek his legal opinion on one issue, some of overseas Pakistanis mostly based in Abudhabi have bought a residentual and commercial plots in 2012-13 from a developer representative office in AbuDhabi during their pre launching campaign , the project was shown on M9 highway in Jamshoro district, at that time it was declared by developer the possession of plots will be given in 2014, to date they did not launch the project nor the development work has been completed, yet no clarity in future of project, some of buyers already quite from the job and back home, they have paid the price in AbuDhabi, now if they want to surrender their plots and want to get refund of their money than : 1) They have to pay any tax on their sale value or CGT? (As it was a white money and paid outside the country).
2) If th buyer have moved to Pakistan ,what should be legal way to get the refund payment?
3) Since future of the project is undefined by developer and uncertainty is persisting what will be your legal advise to buyers?
At present the developer is denying to entertain refund requests despite advising to wait.
Thanking you in advance.
Dear Mr Ahmed. Thanks for raising an interesting and challenging query. I am afraid, not being a lawyer I may not be poised well to professionally advise you on the matter. Therefore, please consult a professional practicing lawyer.
Advance Tax is just a lollypop for the tax payers. Do file your returns and tell FBR that you have overpaid and rest will be history. FBR has already to return more than 200 bn to tax payers. Sorry to say but after so many years of paying income tax, I truly believe that paying taxes to govt. Of Pakistan is just like throwing your money into hell.
Salam sir,
Very well written article. Just had a few observations/clarifications.
1. Replacing DC values with fair market values make a lot of sense and I fully agree that it should act as a strong deterrent against using black money proceeds for financing these transactions. And from my own experience, I can tell that most international jurisdictions are getting really sensitive about KYC these days. Previously some of the documentation e.g. showing beneficial ownership details for holding companies/SPVs used to be waived but not anymore. However, I feel that given the huge disconnect between the prevalent DC values and fair market values, the process should be gradual. Perhaps a step approach.
2. Regarding the concept of fair market values, shouldn’t it just be the price at which the transaction was executed between the buyer and the seller? Or are they referring to the older transactions which are still recorded at DC values. If I am interpreting it correctly, then you would only need to modify the old purchase prices which were recorded at DC values as you want to calculate the capital gains tax correctly if applicable. Lets say purchase was concluded 3 years ago and as per norm it was recorded at a much lower DC value. Then the fair valuation of the purchase price should take into account market realities around that time as they could be different than the prevailing conditions. That is easier said than done.
3. Besides curbing the use of black money, does replacing the DC value with fair value have any tax implications besides payment of capital gains tax, which is only applicable if sale is done in less than 5 years from the date of purchase. As per my understanding other fees are fixed payments and hence not linked to DC or market values.
4. Increasing the time limit to 5 years for capital gains tax with the intention of curbing speculative behavior seems a bit harsh to him. In my view 5 years is a reasonable time frame where someone might have a genuine need to sell the property, perhaps to fund an emergency spending or he feels there is another compelling opportunity so he wants to re-balance his/her portfolio. Also my view is that speculative behavior is best curbed at source, i.e. when you are committing for the purchase by increase the LTV, increasing the down payment requirement, increasing stamp duty, more stringent requirements for off plan properties.
I have a very simple question what common Pakistani’s will get after all these tax amendments ? will they get? jobs? jobless allowance? free medical? security? free education?
They made common citizen a fool since 68 years nothing else. Globally Nigeria is known as a heaven of scammers but paypal exist in NIgeria but when its come to Pakistan they refuse due to state bank policies and due to high risk.
I have no problem if they take these taxes on property but Govt must take responsibility to protect investment of a common citizen and if land mafia grab someone’s land then Govt must vacate this land or else pay back the current market price within 30 days. (which can be a dream only)
While debating tax policy, it is imperative to keep in mind that taxes are neither inherently evil nor necessarily justified. This is a discussion riddled with nuances that can easily be taken advantage of for political purposes.
Very nice article i must say