Home »Taxation » Pakistan » Rental income from embassies, missions: FBR asks ministry to provide lease agreements
The Federal Board of Revenue has approached the Ministry of Foreign Affairs seeking lease/rental agreements regarding foreign missions, embassies and residences of foreign diplomats as well as Pakistani residents to properly document actual rental income earned by property owners.

Sources told Business Recorder here on Thursday that FBR has asked the Ministry of Foreign Affairs to provide lease agreements of such embassies and foreign missions to check whether huge rental income has been declared by the Pakistani property owners in their income tax returns. With the help of lease agreements, the FBR will trace the owners of properties rented out to the diplomats and foreign missions.

Moreover, diplomats having their residential accommodations in expensive houses/bungalows, but owners of proprieties are not sharing this information with the tax department. It has been estimated that the move would be instrumental in generating additional revenue in the remaining period of current fiscal year.

Sources explained that the owners of luxurious houses and bungalows, earning rental income in US dollars from foreign missions and embassies, would be registered with the income tax department in the remaining period of current fiscal year. The FBR has decided to bring potential owners of big houses into the tax net where properties have been given on rent to foreign missions and embassies. The Board will give top priority to those owners of big houses who are earning rental income in US dollars from foreign embassies.

They said that the FBR will immediately contact all the foreign missions and embassies and ask for details of properties rented by them in order to ascertain the landlords, who receive rent in US dollars so they can be brought into the tax net. The FBR will co-ordinate with Foreign Office to identify owners of property earning huge amount in US dollars from diplomats in Pakistan.

With the help of rental/lease agreements, the FBR would approach all foreign missions, particularly located in the Diplomatic Enclave and other posh areas of the federal capital. The purpose of the whole exercise is to bring rich owners of houses used by diplomats into the tax net. Another aspect of the exercise is to check whether the foreign missions in Pakistan are duly deducting withholding tax on rental income under Income Tax Ordinance 2001.

A number of hospitals, schools, AOPs, trusts and non-profit organisations frequently hire the buildings but reportedly do not deduct the tax. The institutions like foreign missions are also not reminded to deduct and deposit the tax, despite the fact that they have hired a large number of houses in the federal capital. The foreign missions in Pakistan, who have hired buildings, have to deduct the withholding tax from the total rent, and deposit the same into the national exchequer. The FBR would also verify collection of withholding tax on rent of immovable property under section 155 of the Income Tax Ordinance 2001.

Copyright Business Recorder, 2012

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