On April 27, 2018, Finance Minister Miftah Ismail announced the much-awaited Budget 2018-19. Prime Minister Shahid Khaqan Abbasi had already announced a detailed amnesty scheme and tax reforms package which had set the real estate sector abuzz and sketched the broad outlines of things to come.
Furthermore, to seal the deal, the President of Pakistan had also passed ordinances to the effect, effectively stamping it with the formal legality it needed. However, the ordinances still required the approval of Parliament, so the government included the amnesty scheme and the tax reforms package within the budget itself. Now as far as the legal side of things is concerned, everything is covered.
This piece presents an overview of all the ways that the budget 2018-19 will affect the real estate:
Reforms in real estate sector
- FBR and DC rates will be abolished.
- Prices of any property will be considered to be what the buyer and the seller declare.
- Taxes will be collected on the declared value.
- Purchaser will pay Adjustable Advance Tax of 1% on the declared value. Adjustable Advance Tax will replace the existing Withholding Tax (WHT) paid by sellers and buyers of property. Adjustable Advance Tax, like WHT, will be adjustable into annual taxes of the tax-payers.
- Non-filers cannot buy property with declared value greater than PKR 5 million.
- To discourage undervaluation of property, FBR will be given the right to purchase any property within six months of its registration. It can, however, only be done after paying a certain amount above the declared value.
- In 2018-19, the amount to be paid above declared value will be 100% more.
- In 2019-20, it will be 75% above the declared value.
- From 2020-21 onwards, it will be 50% above the declared value.
- Provinces will be requested to collect 1% tax under Stamp Duty and Capital Value Tax (CVT) on the declared value, after abolishing DC rates.
Amendments in Income Tax Ordinance 2001 that affect real estate
- Section 227C will be amended to prohibit purchase of property by non-filers.
- Section 230F will create a Directorate General of Immovable Property.
- The Directorate will initiate proceedings for acquisition of property that is suspected to have been undervalued to avoid taxes.
- The proceedings cannot be initiated after 6 months from the end of the month in which the transfer of property is registered.
- Section 236K stipulates that the one who registers the transfer of property shall also collect the advance tax at the time of registration.
- If payment for immovable property is on instalments, then tax can also be paid in instalments.
- Section 182 empowers the government officials to take hold of the property.
Voluntary Declaration of Domestic Assets Ordinance, 2018
This is the law that primarily legalises the Prime Minister’s Amnesty Scheme. The purpose is to allow undeclared assets to be voluntarily declared with minimal fines. To quote the Finance Minister, “Now that tax rates have been reduced and data-mining methods have been introduced to identify assets, we are providing last chance to declare undeclared assets held inside the country.” Following are some of the salient points of the law:
- The ordinance supersedes all other laws in Pakistan.
- All Pakistanis can avail the scheme except public office holders, their spouses, and dependent children.
- All undeclared domestic assets including open plots, land, super structures, apartments and flats can be declared under the ordinance. For the purpose of tax and penalty payment, these assets will be valued as follows:
- Open plots or land can be valued at cost of acquisition or FBR rate, whichever is higher.
- Super structure will be valued at PKR 400 per sq. ft.
- Apartments and flats will be valued at cost of acquisition or DC rates, whichever is higher.
- The declarations will be kept confidential.
- The declaration will be immune from use as evidence against declarant under any law.
- The ordinance allows time from April 11, 2018 to June 30, 2018.
These are the primary aspects of Budget 2018-19 that affect real estate sector directly. We will soon share a detailed analysis and more opinions on how these changes can affect the real estate sector. What are your views on this? Do you have any questions about it? You can talk to us in the comments section. You can also head to the Zameen Forum for a detailed conversation.