SOHAIL SARFRAZ & ZAHEER ABBASI

ISLAMABAD: Finance Minister Ishaq Dar Saturday announced a package for real estate sector under which the Federal Board of Revenue (FBR) will notify new rates for evaluation of immovable properties for one year (June 30, 2017), period of capital gains reduced from existing five years to three years on future property transactions, 5 percent capital gains tax (CGT) for past transactions (holding period up to 3 years) and enhanced limit from Rs 3 million to Rs 4 million for calculation of withholding tax on buying/selling of property.

Addressing a press conference at the FBR House here Saturday, the Finance Minister stated that the FBR will now issue notifications on enhanced valuation of properties on an annual basis. The existing valuers system has been ended. The new values of all major cities including Karachi, Lahore and Islamabad have been mutually agreed between the FBR and the real estate sector. The new valuation table of the FBR would be valid for computation of Capital Gains Tax (CGT), withholding tax and section 111 of the Income Tax Ordinance 2001 dealing with the issue of unexplained income/assets. “We cannot say it is an amnesty scheme for the real estate sector,” he maintained.

The basis for calculation of CGT, withholding tax and protection under section 111 of the Income Tax Ordinance 2001 would be done on the basis of FBR valuation table which would remain valid for a period of one year, Dar said.

The government would give legal cover to the valuation of properties agreed with the stakeholders through legislation or Presidential Ordinance. He said that required amendments would be made in the law. He also maintained that the entire system of valuation has been made so transparent and these reforms would benefit the country. “A baseline has been made,” he said adding that limit of withholding tax has been increased from Rs 3 million to Rs 4 million.

He said that details of valuation would be made available through a notification and nothing unlawful would be done. The Finance Minister further stated that the current valuation agreed would be valid till June 30, 2017 and the Federal Board of Revenue (FBR) and stakeholders would meet again in June 2017 for discussion on valuation.

Dar said the impact of this reform would be significant as the tax would be applicable on both buyers and sellers. In reply to a question, he said that if provinces adopt this valuation it can also benefit them but the withholding tax, capital gain as well as triple eleven are federal taxes.

He said the understanding reached between the government and real estate sector has ended fear and it is acceptable to all. The representative of real estate sector has also endorsed the finance minister’s view and stated that the mechanism for evaluation of properties agreed or rate is acceptable to them.

The stakeholders have admitted that the DC rates are considerably low as compared to the actual market values.

To another query, he said the government has not announced any amnesty scheme for the real estate sector.

Details of the package revealed that the government has decided to reduce the period of capital gains from existing five years to three years on disposal of immovable properties. Under the Finance Act 2016, it was proposed that capital gain on disposal of immovable properties be taxed at a rate of 10 percent if the property is sold within five years of acquisition. Now, it has been decided to reduce the period from 5 to 3 years. The FBR will introduce three slabs for payment of CGT on future transactions. It has also been decided that flat rate of 10 percent CGT would be applicable during the first year, 7.5 percent rate during 1 to 2 years and 5 percent CGT on 2 to 3 years period.

In case of old transactions prior to July 1, 2016, if the holding period is less than three years, CGT at the rate of 5 percent will be applicable and no CGT will be applicable if holding period is above three years.