Budget 2024: Capital gains tax on disposal of immoveable property suggested
- Number of taxpayers who hold properties do not declare them in wealth statements.
- Such property is declared after the passing of stipulated holding period.
- After passing of such period, the capital gain is claimed as exempt by them.
ISLAMABAD: The Revenue and Resource Mobilisation Commission (RRMC) has recommended a major amendment for slapping the capital gains tax (CGT) on the disposal of immovable property in the coming budget.
According to the amendment, the advantage of non-taxability of CGT on the disposal of immovable property should be made available to only those who declare it in their wealth statement.
In its report, the commission has recommended to the government that under Section 37 of the Ordinance, read with Division VIII of the First Schedule to the Ordinance, capital gains on disposal of immovable property in any kind (flat holding period exceeding 2 years but does not exceed 3 years, constructed property holding period exceeding 4 years but does not exceed 5 years and open plots holding period beyond 6 years) is taxable at zero rate.
However, it has been noted that there are a number of taxpayers/persons who hold properties but do not declare the same in their wealth statements until the passing of the stipulated holding period when its gain on disposal of immovable property becomes non-taxable. After the passing of such period, the capital gain is claimed as exempt by them.
It is, therefore, recommended that the advantage of non-taxability of capital gains on disposal of immovable property should be available to only those who have declared the property in the wealth statement in the year of acquisition and in subsequent years till disposal, subject to the condition that the availability of benefit will be once in three years. This would help cope with under declaration of property by the taxpayers.
For documentation of the property sector, the report recommends to the government that there are more than 15 REIT Management Companies (RMCs) which have already acquired the RMC license to operate and are still in the process of launching different schemes as per the available information.
These RMCs picked up momentum post-promulgation of revised REIT Regulations in Jun 2021 and subsequently Nov 2022.
Clause (99A) of Part I of Second Schedule to ITO provides exemption on profits and gains accruing to a person on the sale of immovable property or shares of special purpose vehicle to any type of REIT scheme up to the 30th day of June, 2023.
In the current situation whereby the benefit provided will be expiring on June 30, 2023, the newly licensed RMCs will not be able to launch REIT schemes by that time. The advantage originally provided in the Income Tax Ordinance 2001 was to provide impetus to the REIT business. The benefit provided has played a pivotal role in expanding the REIT industry whereby a large number of companies have acquired the RMC license.
The renewal of this benefit will attract entities/persons to sell their properties/SPVs under the REIT structure which is highly regulated and documented. Additionally, this will also encourage the RMCs to launch various REIT schemes resulting in increasing economic activity by attracting local and foreign investors.
It is, therefore, recommended that the benefit currently available may be extended till 30th June, 2026. Moreover, it is also recommended to substitute the word “immovable property” with “real estate” to align the provisions of the ordinance with the provisions of REIT regulations.
Moreover, Clause (11A), Part IV of Second Schedule to the ITO also provides an exemption to REIT from the application of section 113. Whereas, clause (47B), part IV, second schedule has already granted the status of SPV to a REIT through an amendment vide Finance Act, 2022. The like amendment in clause (11A) was unintentionally missed, which has created an anomaly.
Therefore, to remove this anomaly, clause(11A) is also recommended to be amended in line with clause (47B) and the words “Special Purpose Vehicle, which has the same meaning as defined under the Real Estate Investment Trust Regulations, 2022” are recommended to be added along with REIT.
For invoking Section 111 on the discovery of undeclared assets of non-filers, the RRMC stated that it is recommended that Section 111 of the ordinance needs to be amended in a manner that all undeclared benami assets be taxed in the year of discovery and the period of limitation on such assets should be applicable from the year they are discovered in.
The existing law provides for the taxation of foreign assets in the year of discovery for the reason that foreign assets are difficult to identify and track. For local assets, there is a separate law that debars holding assets under benami. However, there is a legal issue with its applicability to the assets created prior to the law.
This proposal would help in the broadening of tax base and increase tax revenue generation from undeclared assets, also deterring concealment of assets for the period of limitation after which they can be easily declared in the wealth statement, as of now.
Gold rate declines for second consecutive day
- Rate of gold reaches Rs232,800 per tola.
- International rate up by $11 per ounce.
- The silver price remains unchanged.
Despite an increase in the international rate, gold’s value declined in Pakistan for the second consecutive day Tuesday.
Data provided by the All Pakistan Sarafa Gems and Jewellers Association (APSGJA) showed the price of gold (24 carats) decreased by Rs1,700 per tola and Rs1,458 per 10 grams to reach Rs232,800 and Rs199,588, respectively.
The gold rate cumulatively lost Rs1,100 per tola last week, and a further Rs1,700 on the opening day this week.
Meanwhile, the international price went up $11 to settle at $1,956 per ounce.
The safe-haven bullion’s value has remained volatile in the international market recently. However, it bounced back from its lowest level in over two months Tuesday after the US dollar’s value declined from a high and investors remained anxious about negotiations on the US debt ceiling.
If the debt ceiling — which is currently capped at $31.4 trillion — is not raised in the next few days, it would trigger the first-ever US default.
Investors also remained wary about a possible hike in the interest rate, which would negatively affect gold’s value.
Meanwhile, the gold rate has been volatile in Pakistan recently amid continued political and economic uncertainty, high inflation, and currency depreciation. People prefer to buy the yellow metal in such times as a safe investment and a hedge.
The rupee gained Re0.07 or 0.02% against the US dollar in the interbank market Tuesday, closing at Rs285.35, according to State Bank of Pakistan data.
Data shared by the jeweller’s body showed that the rate of silver remained unchanged at Rs2,850 per tola and Rs2,443.41 per 20 grams, respectively.
France launching electric car battery factory to dent Chinese dominance
Under a plan of reindustrialisation by President Emmanuel Macron, France is to inaugurate a factory for manufacturing batteries for electric cars Tuesday in Billy-Berclau — the first of its kind — challenging the Chinese dominance in the industry, according to an AFP report.
Battery industry buildup is a component of the plan by Macron with a clutch of factories set to emerge in the north of the country over the next three years.
The “gigafactory” is owned by Automotive Cells Company, a partnership between French energy giant TotalEnergies, Germany’s Mercedes-Benz and US-European automaker Stellantis, which produces a range of brands including Peugeot, Fiat and Chrysler.
The inauguration will be attended by French Economy Minister Bruno Le Maire and the country’s energy transition and industry ministers along with German and Italian officials.
The heads of Mercedes, Stellantis and TotalEnergies will also be at the event.
The factory is as large as football pitches in which production will commence this summer.
Elected officials and business leaders intend to turn the Hauts-de-France region into “Battery Valley” — the electric car industry’s answer to Silicon Valley.
AESC-Envision — a Sino-Japanese group — is building a plant near the city of Douai which will supply French automaker Renault from early 2025.
French startup Verkor is scheduled to begin production at a facility in Dunkirk from mid-2025 while Taiwan’s ProLogium has also chosen the coastal city for its first European factory, with output to start in 2026.
Competition between US and China
As European Union (EU) has marked a deadline of 2035 to phase out fossil fuel-run cars, the countries are racing to step up the production of batteries and electric vehicles to meet the target of electric vehicles within the deadline.
In recent years, around 50 battery factory projects have been announced in the EU and the French government has set a target of producing two million electric vehicles per year by 2030, as per the economy ministry.
The ministry said that “the ACC plant will supply 500,000 vehicles per year by then.”
China is the world leader in electric car battery production and also dominates the production of the raw materials needed to make them.
Europe also faces stiff competition from the United States, which is heavily subsidising the sector through the Inflation Reduction Act, which includes $370 billion in clean energy incentives.
Govt mulls slashing duty on mobile phones in budget
ISLAMABAD: The Federal Board of Revenue (FBR) is mulling options to reduce the duty on mobile phones in the federal budget for the fiscal year 2023-24 — which is expected to be unveiled on June 9 — keeping in view the suggestions of Pakistan Mobile Phone Traders, The News reported Monday.
Previously, the government was obliged to raise the duty on mobile phones by 100% to 150%, and resultantly, only Rs5 billion to Rs10 billion were being deposited in the national exchequer instead of Rs85 billion.
The number of mobile phone users in Pakistan has exceeded 186.9 million.
In order to cope with the financial crisis of the current financial year, in the new budget, a proposal for a conspicuous reduction in the rates of duties on cellular phones is under consideration, which is about 100% to 150% at present on small and big mobile phones.
The mobile industry is on the brink of collapse due to an increase in taxes. It not only affected traders but also made the life of millions of people difficult to earn a livelihood.
It has been learnt that a delegation of the Mobile Phones Traders Association has given recommendations to Finance Minister Ishaq Dar and other senior officials.
The delegation ensured that efforts would be made to include the recommendations in the budget. These proposals and recommendations are being reviewed to make them a part of the new budget.
It has been learnt that a 75% duty was imposed on cellular phones in Pakistan as compared to other countries of the region like Singapore, Bangladesh and Turkey where it is not at that level. That is the reason people are using smartphones without paying duties in connivance with FBR.
The additional 100% to 150% duty on cell phones has made it out of reach of the poor, labourers, daily wagers, students, professionals, the lawyer community, and civil society.
All Pakistan Mobile Phones Traders Association General Secretary Munir Beg Mirza said that due to the ban on the import of used mobile phones, smuggling has increased to give favour to a few companies.
Also, people are using smartphones illegally without paying heavy taxes to enjoy all functions of smartphones, which is inflicting a loss on the national kitty.
He said that not only every consumer would pay tax but also the government would get Rs100 billion instead of Rs5 billion on phones if an appropriate duty was imposed in the new financial year.
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