Rental income: SECP proposes rationalisation of taxation

[Naveed Yaseen]

ISLAMABAD (May 29 2009): Securities and Exchange Commission of Pakistan (SECP) has proposed rationalisation of taxation on rental income in the upcoming budget (2009-2010) to apply uniform tax rate on income from property. Sources told Business Recorder on Thursday that the SECP has proposed amendment in the Income Tax Ordinance 2001 to rationalise tax rate on rental income.

According to the proposed amendment, the rate of tax to be paid under section 15 (income from property) of the Income Tax Ordinance shall be 5 percent of the gross amount of rent chargeable to tax under that section. The proposed amendment would have minimum revenue implications on the Federal Board of Revenue (FBR) tax collection. The SECP has proposed amendment in the Division VI of Part I of the First Schedule of 'Income from Property' under Ordinance 2001.

The high taxation rate of rental property will greatly reduce the level of transparency in lease transactions and lead to low net rental yields, which discourage owners from renting out their properties. Bringing the tax load on rental income back to 5 percent as full and final payment, will not only encourage transparent leases, but the revenue impact of this recommendation is also expected to be positive or only negligible if negative, given the long term benefits to the economy. Some other incomes like dividends are also taxed at flat rates.

Under the existing provision, the rate of tax to be paid under section 15, in the case of individual and association of persons, shall be:

(1) Where the gross amount of rent does not exceed Rs 150,000, the rate of tax would be nil.

(2) Where the gross amount of rent exceeds Rs 150,000 but does not exceed Rs 400,000, tax rate would be 5 percent of the gross amount exceeding Rs 150,000.

(3) Where the gross amount of rent exceeds Rs 400,000 but does not exceed Rs 1,000,000, rate of tax would be Rs 12,500 plus 7.5 percent of the gross amount exceeding Rs 400,000.

(4) Where the gross amount of rent exceeds Rs 1,000,000, tax rate would be Rs 57,500 plus 10 percent of the gross amount exceeding Rs 1,000,000.

(b) The rate of tax to be paid under section 15, in the case of company, shall be:

(1) Where the gross amount of rent does not exceed Rs 400,000, tax rate would be 5 percent of the gross amount of rent.

(2) Where the gross amount of rent exceeds Rs 400,000 but does not exceed Rs 1,000,000, tax rate would be Rs 20,000 plus 7.5 percent of the gross amount of rent exceeding Rs 400,000.

(3) Where the gross amount of rent exceeds Rs 1,000,000, tax rate would be Rs 65,000 plus 10 percent of the gross amount of rent exceeding Rs 1,000,000. SECP also proposes the rate of tax to be paid under section 15 shall be 5 percent of the gross amount of rent chargeable to tax under this section.

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