To strengthen the tax system and boost revenue, the Reform and Revenue Mobilization Commission (RRMC) under the leadership of Ashfaq Tola has put forward a set of comprehensive recommendations for reforming the real estate tax system in Pakistan.
These proposals, expected to receive support from the Federal Board of Revenue (FBR), aim to address issues such as tax evasion and the prevalence of benami properties.
One of the key suggestions put forth by the RRMC is mandatory tax registration for property buyers and sellers. Individuals involved in property transactions would be required to register for tax purposes if implemented. This measure aims to improve transparency and accountability in the real estate sector, helping to curb tax evasion and under-reporting of income and property.
Another significant proposal centers around attaching capital gains tax exemption to asset disclosure at acquisition time. Under the current system, capital gains tax exemption is provided without any requirement for asset disclosure.
The RRMC suggests that this exemption should be conditional upon properly disclosing assets during the acquisition process. Linking capital gains tax exemption to asset disclosure aims to ensure that individuals accurately report their assets and prevent the concealment of benami properties.
To tackle the issue of benami properties, the RRMC recommends revising Section 111 of the Income Tax Ordinance. This amendment would address tax evasion related to benami properties and enable the authorities to impose taxes on all concealed benami assets discovered within a specified timeframe. The proposal also suggests applying the statute of limitations from the year of discovery, ensuring that individuals cannot evade taxes by keeping benami properties undisclosed for an extended period.
While the government is expected to support these recommendations, the complete implementation of the FBR’s proposals remains uncertain due to the current low number of taxpayers relative to National Tax Number holders in Pakistan. The RRMC’s findings highlight significant under-reporting of income and property, indicating that many taxpayers fail to fulfill their tax obligations accurately.
If these reforms are approved and implemented, they have the potential to strengthen the tax system, increase revenue, and enhance transparency in Pakistan’s real estate sector. The RRMC’s proposals mark a significant step towards combating tax evasion and addressing the issue of benami properties, ultimately striving for a fairer and more equitable taxation system in the country.
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