ISLAMABAD: The number of transactions on immovable properties made by sellers under section 236-C of the Sales Tax Ordinance, reached 97,058 during the first half of the current fiscal year from 88,088 transactions in the corresponding period of the fiscal year 2015-16.
“Therefore, the enhancement in holding period of immovable property subject to Capital Gain Tax (CGT) from two years to three years has cast no adverse impact on the real estate market /sellers of immovable property,” sources at the Federal Board of Revenue (FBR) told Customs Today on Monday.
The sources said that the withholding tax on the purchase of property under section 236-K of the Ordinance, which was previously 1 percent and 2 percent for filers and non-filers respectively (in cases where value of immovable property exceeds Rs 3 million) had now been enhanced to 2 percent and 4 percent for filers and non-filers respectively through the Finance Act, 2016.
“The rationale behind such increase is that a large quantum of untaxed money is being invested in the real estate sector whereas the tax contribution of this sector is not commensurate with its revenue generating potential,” the sources added.
The sources observed that the withholding tax rate on purchase of property under section 236-K of the Ordinance has primarily been increased as a revenue generating measure, however, it would be beneficial to mention that this tax was adjustable in the hands of the purchasers which means that the tax – collected was refundable if there was no tax liability at the time of filing of return or was adjusted against tax liability if any.
Moreover, the source said that simultaneously the threshold of applicability of withholding tax on purchase of property under section 236-K of the Ordinance had been enhanced from Rs 3 million to Rs 4 million which offered greater advantage for small investors because currently the purchase of immovable property up to Rs. 4 million was not subjected to collection of tax under section 236-K of the Ordinance, whereas, previously such threshold was Rs 3 million.
“Due to the increase in threshold for collection of tax from purchasers of immovable property, more buyers have been ousted from the purview of section 236-K of the Ordinance, thereby, affording such buyers greater benefit,” the source added.
