4% CVT on all immovable property deals: Law Ministry to vet draft notification

[LRE]

SOHAIL SARFRAZ
ISLAMABAD (December 21 2009): The Federal Board of Revenue (FBR) has sent the draft notification to the Law and Justice Division for imposition of 4 percent capital value tax (CVT) on buying and selling of all sizes of commercial and residential immovable property. Sources told Business Recorder here on Sunday that the notification would be issued following vetting by the Law and Justice Division.

The issue of collection of CVT from immovable property came into light during the last commissioner's conference. The FBR officials informed the Chief Commissioners of Large Taxpayer Units (LTUs) and Regional Tax Office (RTOs) that the draft of the amendment in the relevant law has been sent to the Ministry of Law for withdrawal of exiting exemption on specific areas to improve CVT collection from immovable property. Following clearance by the Law Ministry, the FBR would issue the notification in this regard.

Sources said that revenue collection of CVT could witness an extraordinary increase after bringing small property transactions into the tax net. This required strict enforcement and monitoring of all such transactions at provincial level. The FBR has found that revenue collection has declined after doubling the CVT rate on land transaction from 2 to 4 percent in budget (2009-10).

The FBR had projected revenue collection of Rs 15 billion from CVT on immovable property in last budget. However, the CVT collection is much less than the projected amount. The doubling of CVT on immovable property had encouraged people to avoid payment of the levy.

Some of the reasons of low collection of CVT included collection of the levy by the registrars on old forms. There is a possibility of splitting of bigger size of plot into two for avoiding CVT. The revenue leakages might be taking place with the help of registrars, who were responsible for collecting the CVT on behalf of the FBR.

Now, the FBR intends to levy a uniform rate of 4 percent CVT on all sizes of commercial and residential properties, which might result in increase in CVT collection during 2009-10.

When contacted, tax experts said that the 4 percent CVT on immovable property is very high. The basic purpose of imposition of CVT on land transactions was to broaden the tax base instead of generating revenue. The tax is not levied as a revenue generation measure. The FBR would not be able to generate projected amount till the rate of existing 4 percent CVT is brought down to 2 or one percent. The lower rate of one to 2 percent would encourage people to avoid under-valuation or splitting of property to evade the authorities. The buyers of property would not hesitate to pay 1 to 2 percent lower rate of CVT on immovable property. Contrary to this, 4 percent rate is exceptionally high where it is almost impossible for the FBR enforcement departments to obtain CVT on accurate values of property.

On principle, if the FBR wanted to withdraw exemption, the different CVT rates, 'where the value of immovable property is recorded or not recorded' needs to be abolished as well, experts added.

Copyright Business Recorder, 2009

http://geo.tv/12-21-2009