Home »Top Stories » Sale/transfer of immovable property: exemption from capital gains may be restored

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  • Apr 27th, 2017
  • Comments Off on Sale/transfer of immovable property: exemption from capital gains may be restored
The government is likely to restore exemption from capital gains on sale/transfer of immovable property to Real Estate Investment Trust (REIT) scheme in the upcoming budget (2017-18). Sources told Business Recorder here on Wednesday that the Securities and Exchange Commission of Pakistan (SECP) has proposed reinstatement of exemption from capital gains on sale/transfer of immovable property to REIT scheme through amendment in clause 99A of Part I of the Second Schedule to the Income Tax Ordinance, 2001.

According to the SECP budget proposal, the sale of real estate to a REIT scheme is an extra step which is only required so that property is transferred in the name of trustee. No other form of organization, such as a company, partnership or sole-proprietorship, has to undertake this transaction.

It has no economic or business implication for the owner of the property. Capital gains accruing to the seller through this transfer (sale) are only paper gains, as the owner is mostly issued REIT Units in lieu of his contribution in the form of real estate. Outside the REIT structure, owner does not have to transfer the property hence he pays minimal taxation under Section 7C and 7D of the Income Tax Ordinance, 2001. Exemption from this capital gains tax, which was available till June 2015, is the most critical starting point to promote REITs in the country.

The current limited exemption cripples REITs'' potential as many opportunities entail commercial developments such as malls, offices, warehouses, etc, which are ideal avenues for REIT involvement. Reinstatement of exemption from capital gains on sale/transfer of immovable property to REIT scheme through amendment in clause 99A of Part I of the Second Schedule to the Income Tax Ordinance, 2001 has been proposed.

The SECP said that the sellers will be encouraged to deal with/bring owned properties into REIT schemes which will lead to discovery of actual market price of real estate. At present the prices of real estate in the valuation tables are substantially lower than the market value. Intervention is required in order to strike balance of tax incidence on sellers of property to REIT schemes (on actual price) and sellers of property to others (as per valuation table). In the long run, the economy will benefit from discovery and documentation of actual values of properties and consequential capital gains taxes, CVT, stamp duty registration fee and compliance with other laws, the SECP added.



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