The National Assembly has passed an open-ended Real Estate Tax Amnesty scheme that will allow people to retain 97% of the undisclosed (Black) and tax-evaded money.
As per the amended rules, realty sector investors can pay a 3% tax on the differential amount between the FBR-determined property valuation rates and the district commissioner rates.
The new tax amnesty scheme is not time-bound and tax evaders can avail it any time in the years to come by paying a nominal 3% penalty as ‘advance income tax’, according to the Income Tax Amendment Act 2016 that the government got passed from the parliament.
The standard maximum income tax rate for individuals is 35%. On late payment, there is a 100% penalty, bringing total liability to 70% of the income. However, the new scheme will allow people to pay only 3% of the hidden income and get away with the remaining 97%.
No amendment has been made in the existing regular taxes on the real estate sector. Advance tax, CGT and all other levies are to be paid as per the existing rates and percentages.
At present, taxes on property transactions are determined through property values set by the district commissioners (DC) at the provincial level while federal taxes are paid on the basis of FBR-notified property rates. Real Estate Tax Amnesty is only applicable to the difference of FBR Value and DC rates or Actual property value and DC rates, however, if you sell the plot within 3 years, you will need to pay CGT at respective percentages of 10, 7.5 and 5% for 1st , 2nd and 3rd year respectively, if you want to declare the entire sale amount as white money.
It is expected that after this amnesty scheme; investors, having black money, will enter into the real estate sector to whiten their money and the investors will be more secure and comfortable while investing in this sector.
However for the short term investors, it is suggested that they should pay 3% levy on actual value and get their money whitened. This one-time payment will whiten the money once and for all. The long term investors, who don’t intend to sale the purchased property in less than three years, they should pay 3% levy on the difference of FBR value and DC rate.
This Real Estate Tax Amnesty will go a long way in strengthening the real estate sector, eliminate the fear factor and bring in much more aggressive investors in the market.
To explore more viable investment options and reap the fruits of your labor, contact Saiban Associates where the professionals of real estate sector will help you decide and invest in a much more prospective way.