Real Estate agents lost their war at table

 

Lahore : Finance Minister Ishaq Dar held talks with the property evaluators from all over the country on the issue of Valuation of Property and related tax matters.

The talks between FBR and real estate association continued for 10 days before reaching the agreement.

The Federal Board of Revenue  would notify the valuation tables of the properties instead of State Bank of Pakistan ’s valuators, it has been decided as talks between federal government and real estate sector concluded successfully .

The FBR has agreed with the market rates provided by the real estate sector in cities including Karachi, Islamabad, Lahore, Rawalpindi, Jhelum, Gujranwala, Gujrat, Sialkot, Faisalabad, Multan, Rahim Yar Khan, Bahawalpur, Hyderabad, Sukkur, Peshawar, Abbottabad, Quetta and Gwadar.

“Appropriate legislation will be done to give effect to the proposed changes as agreed with all stakeholders,” Finance Minister Ishaq Dar told the media later.

He said the government and relevant stakeholders are agreed on valuation of properties in major cities. “Valuation tables will be notified by FBR instead of SBP approved valuers,” he said. There are some parts of the cities where rates of properties have not been finalised as yet and there DC rate will continue to be applied, he added.

The minister also announced that holding period for CGT (capital gain tax) has been reduced from 5 to 3 years. There will be no CGT on property held for more than 3 years, he added.

Properties acquired on or after July 1, 2016 would be charged CGT at 10 percent if holding period is up to 1 year, 7.5 percent if holding period is between 1 and 2 years, and 5 percent if the period is between 2 and 3 years. There will be no CGT beyond 3 years time.

For the past transactions (properties acquired before July 1, 2016), the CGT would be 5 percent if holding period is less than 3 years, the minister said. And, if holding period is more than 3 years, the CGT would be zero percent.

Ishaq Dar said that basic threshold of Rs 3 million for application of withholding tax on purchase of immovable property has been enhanced to Rs 4 million.

The ranges of revaluation will be around minimum 35 percent to maximum 400-500 percent depending on location. For plots located in posh areas like DHA, the revaluation will be considerably enhanced.

The government had enhanced the tax rates on the sale and purchase of land and other properties in the federal budget 2016-17. It had also decided to appoint State Bank of Pakistan’s valuators to determine the current market prices of the properties – a decision rejected by the real sector.

The government increased the rate of CGT to 10 percent in the budget for 2016-17 on disposal of immovable property if it was being sold within five years of acquisition. Earlier, the period was two years and the tax rate was 2-5 percent; whereas, if the buyer held the property for more than five years, it was to be exempted from CGT.

Meanwhile ; PR added that The government and the real estate sector representatives on Saturday reached a consensus on the issues of fair market valuation of the property and Property Gain Tax (PGT). “After comprehensive discussions, which continued for last 10 days with the business community and representatives of the real estate sector, we have made some decisions with consensus which are acceptable to both the parties,” Minister for Finance Muhammad Ishaq Dar said while briefing  mediamen after the meeting here.

He said it was decided that the notification for fair market valuation of the real estate properties would be issued by the Federal Board of Revenue (FBR) instead of State Bank of Pakistan.

The FBR, he said, would issue the notification regarding the agreed value of the property in 18 major cities of the country very soon, while DC rate would be applicable in the small cities, where
the valuation had not been done yet.

The second decision, he said, was that the retaining period of the property (acquired on or after July 1, 2016) was being reduced from five years to three years.

Ishaq Dar said the real estate representatives demanded that the holding period should be reduced to two years but the government had decided to keep it at three years.He, however, said instead of imposing flat 10 per cent CGT on the sale of property, three different slabs had been evolved. “Ten per cent tax will be imposed on the sale of property which had been held for less than a year, whereas, 7.5 per cent tax on property which has been held from one to two years and 5 per cent tax on the property which was purchased two to three years ago.”

However, he said the Capital Gain Tax would be exempted on the sale of all those properties which had been held for over three years. The minister said a flat rate of 5 per cent would be applicable
on the properties which were purchased before July 01, 2016.

He said the valuation would apply for CGT, withholding tax and for the purpose of Section 111.”Basic threshold of Rs 3 million for the application of withholding tax on the purchase of immovable property has also been enhanced to Rs 4 million,” he added.

He said appropriate legislation would be done to give effect to the proposed changes as agreed with all the stakeholders. He thanked the business community for cooperating with the government in this
regard. He termed the consensus on decisions regarding taxes on the sale and purchase of the property a positive step which would help strengthen the country’s economy.

Federation of Pakistan Chambers of Commerce and Industry (FPCCI) President Abdul Rauf Alam, on the occasion, thanked the Finance Minister and the government for accepting their major demand of properties valuation. He said the government representatives listened to their concerns
and agreed to their demands. The real estate was going to now become an industry, which would be a major source of revenue for the government,he added.

The Finance Minister also announced to retain 0.4 per cent withholding tax on the banking transaction of over Rs 50,000 for non-tax payers for one more month.