The Overseas Investors Chamber of Commerce and Industry (OICCI) has presented a novel proposal to the Federal Board of Revenue (FBR) for the upcoming 2024-25 budget. Their plan aims to expand Pakistan’s tax net and tackle undeclared properties by linking withholding tax (WHT) collection with property taxes.
Targeting Undocumented Properties
The OICCI emphasizes categorizing properties into agricultural and non-agricultural for better organization. They propose FBR to acquire comprehensive details of these properties and cross-check them with taxpayer wealth statements. This would help identify undeclared properties and their true owners.
WHT on Property: A New Revenue Stream
A key aspect of the proposal is the collection of a 0.5% annual withholding tax on the FBR value of all immovable property, including agricultural land. This tax would be credited against the owner’s overall tax liability. Importantly, income tax collected on agricultural land would offset the provincial agriculture income tax, streamlining the system. Additionally, small properties would be exempt to minimize the burden on low-income owners.
Revisions to Capital Gain Tax Exemption
The OICCI also recommends revising the Capital Gains Tax (CGT) exemption on property sales. Under their plan, CGT exemption would be limited to:
- Individuals who declared the property upon acquisition.
- One property every three years.
- Properties held for 4-6 years.
These changes aim to incentivize transparent property declaration while discouraging speculative real estate investments.
Benefits and Potential Impact
The OICCI’s proposal holds promise for improving tax compliance and revenue generation. Linking WHT with property taxes promotes a fairer system by capturing previously untaxed properties. Additionally, the revised CGT exemption discourages tax evasion and encourages responsible property ownership.
As budget discussions progress, the OICCI’s recommendations are sure to spark discussions among policymakers and stakeholders. Evaluating the feasibility and potential impact of this innovative approach will be crucial in determining its effectiveness in achieving a broader tax base and a more transparent property market in Pakistan.
