According to the FBR, the FBR has explained measures for incentivizing investment in REIT and Collective Investment Schemes [Division III of Part I and Division I of Part III of the First Schedule.
Prior to the Finance Act, 2018 the dividend received by a company from a collective investment scheme, a REIT scheme or a mutual fund (except a stock fund) was subjected to tax @ 25% for the tax year 2015 onwards under section 5 of the Income Tax Ordinance, 2001. In order to incentivise investment by companies in collective investment schemes, REIT schemes and mutual funds, an amendment has been made in the second proviso to Division III of Part I of the First Schedule to the Income Tax Ordinance, 2001 whereby the rate of tax has been reduced from 25% to 15% in respect of dividend received by a company from a collective investment scheme, REIT scheme or a mutual fund (other than a stock fund).
Similarly, in consonance with the reduction in the rate of tax on dividend received by a company from a collective investment scheme, a REIT scheme or a mutual fund under section 5 of the Income Tax Ordinance, 2001 the tax required to be deducted under section 150 of the Income Tax Ordinance, 2001 by a collective investment scheme, REIT scheme or mutual fund upon payment of dividend to a company has also been reduced from 25% to 15% (in case such company is a filer) by making amendment in Division I of Part III to the First Schedule to the Income Tax, 2001. However the rate of tax under section 150 of the Ordinance required to be deducted upon payment of dividend by a collective investment scheme, REIT scheme or mutual fund to a company, being a non- filer, has not witnessed any change and has remained static at 25%, the FBR said.
Prior to the Finance Act, 2018 any person receiving dividend from a Developmental REIT Scheme set up by 3oth June, 2018 (for the purpose of development and construction of residential buildings) could avail a 50% reduction in tax for a period of three years with effect from 30th June, 2018 in terms of the third proviso to Division III of Part I of First Schedule to the Income Tax Ordinance, 2001. In order to promote and encourage investment in Developmental REIT Schemes appropriate amendments have been introduced in the third proviso to Division III of Part-l of the First Schedule to the Ordinance through the Finance Act, 2018 whereby persons receiving dividend from a Developmental REIT Scheme shall be entitled to a 50% tax reduction if such Developmental REIT scheme (with the object of development and construction of residential buildings) is set up by 3oth June, 2020. In addition, 50% tax reduction on dividend received from such Developmental REIT Schemes would be available for three years from the date of setting up of such Developmental REIT Scheme.
Corresponding amendments have also been made in the third proviso to Division I of Part-Ill of the First Schedule to the Ordinance in respect of the tax required to be deducted under section 150 of the Income Tax Ordinance, 2001 on the dividend paid by a Developmental REIT Scheme (with the object of development and construction of residential buildings).
Prior to the Finance Act, 2018 the rate of advance tax to be deducted under section 150 of the Ordinance on payment of dividend by a rental REIT scheme to an individual as well as an AOP was 12.5% in the case of a filer and 15% in the case of a non-filer. In order to incentivise investment by individuals in rental REIT schemes, a fifth proviso has been added in Division I of Part III of the First Schedule to the Income Tax Ordinance, 2001 through the Finance Act, 2018 whereby advance tax to be deducted under section 150 of the Ordinance upon payment of dividend to an individual by a rental REIT Scheme has been reduced to 7.5% irrespective whether the individual is a filer or a non-filer, the FBR added.