Pakistan Property News :5 to 10% CGT imposed on sale of property

[Salman]

Pakistan Property News :5 to 10% CGT imposed on sale of property


ISLAMABAD: The federal government, through the Finance Bill 2012-13, has imposed 5.0 percent to 10 percent capital gains tax (CGT) on sale of property and 2.0 percent capital value tax (CVT) on immovable properties in the federal capital.

It has reduced turnover tax from 1.0 percent to 0.5 percent; slashed higher rates of 19.5 percent to 22 percent sales tax to 16 percent; eliminated federal excise duty (FED) on 10 items and reduced customs duty from 35 to 30 percent on 293 items.

The Finance Bill 2012-13 released with budget 2012-13 on Friday has proposed that 10 percent CGT would be applicable on sale of property within one year of the date of the accusation of property; 5.0 percent CGT on sale of property within two years and no CGT would be applicable on sale of property beyond two years. The Federal Board of Revenue (FBR) has estimated generation of Rs 1.5 billion through imposition of CGT on sale of property. The CVT on immovable properties is not being levied in Islamabad Capital Territory. It is proposed to levy and collect CVT on transactions of immovable properties in Islamabad with identical structure adopted by the provinces.

The tax rates for passengers as well as goods transport vehicles are proposed to be enhanced for 20 persons or more from Rs 100 to Rs 500 per seat per annum. In case of goods transport and vehicle, the tax rate has been increased from Re 1 to Rs 5 per kilogramme laden weight.

A number of tax relief measures have been taken for the business community as well as general public. In case of business community the rate of minimum tax is proposed to be reduced to 0.5 percent from 1.0 percent on gross turnover. The relief measure would cause revenue loss of Rs 11 billion. The basic exemption limit has been raised for salaried and business individuals to Rs 400,000 and reduced the existing slabs from 17 to five. These concessionary measures will exempt 64,420 taxpayers besides reducing the effective tax rates and providing relief to the entire salaried and business community. The FBR will suffer a revenue loss of Rs 4.5 billion by providing the relief to the salaried class. One of the major documentation measures is that the manufactures have been declared as withholding agents to collect 1.0 percent tax against sales made to traders and distributors. The FBR has estimated to generate Rs 13-14 billion through this particular revenue generation measure.

To give incentive to the taxpayers opting out of Presumptive Tax Regime (PTR) a lower rate of tax is being offered to commercial importers, exporters and suppliers.

According to the Finance Bill 2012-13, the exemption granted to profit and gains to the Venture Capital Company and Venture Capital Fund till 2014 is proposed to be extended for a period of 10 years - up to 2024. It has been observed that the banks invest in capital market and in return dividend received by the banks is taxed at 10 percent. In order to eliminate the tax arbitrage it is proposed that dividend received by banks from money market funds and income funds are to be taxed progressively for a period of two years (for tax year 2013 at 25 percent and for tax year 2014 onwards at 35 percent).

To promote investment in securities and insurance sectors, the limit of investment eligible for tax credit is being enhanced from 15 percent to 20 percent of the taxable income. The existing limit of investment of Rs 500,000 in securities or insurance premium is also being increased to Rs 1,000,000. The retention period of securities is also being reduced from three to one year.

Mixed relief:

* 2% CVT imposed on immovable properties in federal capital; turnover tax reduced from 1 to 0.5%

* Higher rates of 19.5 percent to 22 percent sales tax slashed to 16%

* FED on 10 items eliminated, customs duty reduced from 35 to 30% on 293 items