The Federal Board of Revenue (FBR) has started scrutiny of real estate transactions under one-time tax amnesty to see if they complied with the valuation table, it emerged on Friday.
“Any amount paid under the scheme that is higher than the FBR valuation and is not disclosed in annual return by a person will be treated as concealed income,” a senior official at Regional Tax Office (RTO–II) Karachi said.
Sources said FBR started scrutiny of payment made by purchasers of properties while availing immunity from disclosing source of income. The sources in the local tax office said the FBR had dispatched thousands of cases to tax offices in the country to examine the total amount paid by individuals, who availed the immunity for the purchase of property.
In December 2016, the government introduced a new section of 236W, through Income Tax (Fourth Amendment) Act 2016, under which the buyers were allowed to pay three percent of tax to whiten money for the purchase of properties. However, the concession was available to the invested money in property purchased to the extent of valuation table notified by the FBR.
The official said the FBR had received information of individuals who availed this scheme from property registrars of the provincial governments.
“In the next phase, the tax offices have started sending notices to the property purchasers to file their annual returns and wealth statements,” the official said. “The tax offices had also started obtaining data from banks of individual buyers to check the actual payment made for the transaction.”
The official said the FBR introduced valuation of properties for various cities in August 2016. The valuation tables were aimed at collecting withholding tax to boost revenue because rates notified by the provincial governments were much lower than the fair market value.
In fact, the FBR valuations were too much lower than the fair market value. Therefore, the FBR enhanced the valuation of properties in February this year and then in July. The incentive provided under the section 236W was abolished through Finance Act 2019 and no more amnesty is available since July 1, 2019.
Official statistics showed that the scheme remained applicable between December 12, 2016 and June 30, 2019. An estimated amount of Rs350 billion was whitened on the real estate transactions during the period, while the FBR collected around Rs10.2 billion as taxes.
The FBR recently issued a circular, explaining that the section 236W and sub-section (4) of section 111 had been omitted through Finance Act 2019.
“Consequently, the purchasers are now required to explain the source of investment of property up to the FBR value of property whereas previously such purchasers were required to explain the source of investment to extent the recorded value of property,” the FBR added.