KARACHI: Pakistan Stock Exchange (PSX) has sought tax exemption to REIT schemes in order to encourage documentation of real estate activities.
In its proposals for budget 2018/2019, the stock market said that REITs worldwide play a significant role in the economic development of the country. In Pakistan it can achieve the government’s objective of documentation of the economy and real estate, enabling government to generate appropriate tax revenues from the real estate sector.
The stock market said that prior to July 01, 2015 the profits and gains (unrealized) accruing to a person on sale of immovable property to both the REIT Schemes (Development and Rental) were exempt from tax.
However, the Finance Act, 2015 inserted a proviso, whereby, the exemption restricted only to the profit and gains on sale of immovable property to a Development REIT Scheme up to June 30, 2020, which resulted that no REIT Scheme has been launched after this amendment.
The current limited exemption cripples REITs potential and further development ultimately documentation has stopped and no tax has been generated from this avenue by the exchequer.
The PSX also proposed that the rate of tax on dividend by REIT Scheme should be similar to the applicable on stock funds (as REIT Funds are listed funds).
It said that tax on dividend on stock funds (including by implication listed REIT funds) was applicable at 10 percent. However, the Finance Act 2015 inadvertently inserted listed REIT Fund in the category of Money Market Funds or Fixed Income Funds; thereby imposing a higher rate of tax on dividends on listed REITs.
