KTBA offers up to 20% real estate capital gains tax

KARACHI: The Karachi Tax Bar Association (KTBA) has proposed up to 20% real estate capital gains tax with elimination of all exemptions and concessions.

The KTBA, in its proposals for the 2022/2023 budget, suggested that the Federal Board of Revenue (FBR) impose an aggressive tax rate on the real estate sector. In this regard, the Tax Bar has recommended an amendment to section 37(1A) of the Income Tax Order 2001. He said the amendment was necessary because the existing law lacks a composite framework for taxation of the real estate sector.

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The KTBA said the taxation of real estate transactions in Pakistan was either nominal or deliberately avoided. Therefore, trade in the real estate sector is the single most important factor in creating a huge informal economy, namely a paradise for evading taxes in Pakistan. “Other harmful consequences of this scenario are money laundering and terrorist financing. International donors/regulators have time and time again suggested measures to improve the situation.

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He proposed that a new head of income in Section 11 of the Income Tax Order 2001 be added as income from the disposal and dealing of immovable property subject to progressive taxation, without allowing any exemption as to the holding period and the amount of the gain:

Where the holding period is two years, the tax rate on gains should be 20%.

Where the holding period is five years, the tax rate on gains should be 17.50%.

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Where the holding period is ten years, the tax rate on gains should be 15%.

When the holding period is more than ten years, the tax on the gain must be 10%.

The tax bar has further proposed a separate definition of income from the disposal and trading of real estate.

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Other regulatory changes recommended by the tax bar are included: Restriction of individual ownership of real estate [save Single member company]- The Transfer of Property Act 1882 needs to be amended; A separate “Real Estate Regulator” is suggested; In addition to the general manager, the commissioner is empowered to request a report from the expert on any real estate transaction

Justifying the proposal, the KTBA said it would strengthen the tax system and be able to collect taxes from the elite class.

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