In a move aimed at incentivizing tax compliance, the government has approved a 1.5% reduction in the advance tax rate for active filers on the purchase of immovable property. This decision, confirmed by sources, is set to provide relief to registered taxpayers engaged in real estate transactions.
The advance tax, which is currently set at a rate of 3-4% under Section 236K of the Income Tax Ordinance, is deducted at the time of property sales.
Differentiated Tax Rates
Under the new proposal, while filers will benefit from a noticeable 1.5% reduction in this advance tax, the rates for late filers and non-filers are expected to remain unchanged. This policy clearly delineates the tax burden, offering a tangible advantage to individuals and entities who are compliant with their tax obligations.
The implementation of this differentiated approach is likely part of the government’s broader strategy to broaden the tax base and encourage more citizens to become active filers. By making property purchases more financially attractive for registered taxpayers, the authorities aim to increase formal participation in the tax system. This measure is anticipated to come into effect as part of the upcoming federal budget.
Exemption Introduced for Properties Held for 20+ Years, Easing Burden on Long-Term Owners
The federal government is set to introduce significant relief for taxpayers by providing an exemption from Advance Tax on the sale or transfer of immovable property, specifically for those who have held a property for personal use for at least 20 years. This measure aims to alleviate the tax burden on genuine, long-term property holders.
Previously, no explicit exemption existed from advance tax under Section 236C of the Income Tax Ordinance on the sale or transfer of immovable property, even in cases where the long-term holding period already made the capital gain exempt under Section 37. This often led to an unnecessary upfront tax burden on individuals who had genuinely held their properties for an extended duration.
New Mechanism for Exemption
Under the new provision, taxpayers who meet specific criteria will now be eligible to apply for this exemption. To qualify, an individual must have:
- Held the property for personal use for a minimum of 20 years.
- Duly declared the said property in their tax returns from tax year 2014 onwards.
Upon meeting these conditions, taxpayers will be able to apply directly to the Commissioner for an exemption from advance tax under Section 236C of the Income Tax Ordinance. This streamlined process is expected to provide much-needed clarity and relief, ensuring that long-term property owners are not subject to upfront taxation on gains that may already be exempt under other provisions of the law.
This move underscores the government’s intention to refine tax policies to better reflect the realities of property ownership and incentivize long-term asset holding, while also reducing instances of double taxation or unnecessary upfront payments.
