ISLAMABAD: The Federal Board of Revenue (FBR) has recently put into effect new tax rates on the sales and purchase of immovable properties across the country.
This move comes as part of the amendments made to the Income Tax Ordinance, 2001, under the Finance Act, 2023, and the revised rates have been applicable since July 1, 2023.
In a circular issued by the FBR, known as Circular No. 2 of Income Tax, dated July 26, 2023, the implementation of the new tax rates on immovable property transactions has been detailed.
According to the FBR, the withholding tax rates on the sale and purchase of immovable properties have been increased from the previous 2% to 3% under sections 236C and 236K of the Income Tax Ordinance, 2001, respectively.
Under the new rates, any individual or entity responsible for registering, recording, or attesting the transfer of any immovable property at the time of registration, recording, or attestation will now be required to collect a 3% tax on the gross amount of the consideration received. This applies to transactions where the seller is on the Active Taxpayers List (ATL). However, for transactions where the seller is not on the ATL, the withholding tax rate has been increased to 6% under section 236C.
Similarly, the aforementioned withholding agent will also be required to collect tax from the purchaser. For transactions where the purchaser is on the ATL, the withholding tax rate has been set at 3% of the fair market value under section 236K. However, for purchasers not on the ATL, the withholding tax rate has been increased to 10.5% under the same section.
The FBR’s decision to implement these new tax rates is aimed at increasing government revenue and streamlining the tax collection process in the real estate sector. By encouraging sellers and purchasers to be listed on the Active Taxpayers List, the government aims to broaden the tax base and promote tax compliance.
The new tax rates have been met with mixed reactions from various stakeholders in the real estate industry. Some argue that the increased tax burden might slow down property transactions and investment, while others see it as a necessary step to ensure greater transparency and accountability in the sector.
Real estate agents, property developers, and potential buyers and sellers are advised to familiarize themselves with the updated tax rates to avoid any non-compliance issues and potential penalties.
The FBR has urged all concerned parties to adhere to the revised tax rates and cooperate with the tax authorities to facilitate a smooth implementation of the new measures.
