According to media reports, the community of builders and developers has again urged the government to amend the Finance Act, 2018 through Finance Supplementary (Amendment) Bill, 2019 lift the ban on the transfer of immovable property to non-filers of income tax returns or to increase the present limit of Rs 5 million to Rs 10 million for non-filers. It may be recalled that in order to alleviate the genuine hardships faced by various categories of persons, the Finance Bill, 2018 already envisages the exclusion of certain categories of persons from the purview of Section 227C of the Income Tax Ordinance, 2001. For instance, the legal limit of Rs 5 million does not apply to non-filers who are legal heirs acquiring property through inheritance. Moreover, as in the case of purchase of motor vehicles, the condition of being a filer does not apply to a person holding a Pakistan-Origin Card or a National Identity Card for Overseas Pakistanis who are able to produce a certificate from a scheduled bank verifying receipt of foreign exchange remitted from outside Pakistan through normal banking channels during a period of 60 days prior to the date of registering, recording or attesting transfer of immovable property valuing above Rs 5 million. In order to effectively enforce the ban on purchase of immovable property valuing above Rs 5 million for non-filers, the Finance Supplementary Act, 2018 envisages levy of various penalties on provincial authorities responsible for registering, recording or attesting the transfer of immovable properties. If any authority responsible for registering, recording or attesting the transfer of immovable property accepts to process the registration or attestation of immovable property valuing above Rs 5 million in the case of non-filers, such authority is liable to pay a penalty of 3 percent of the value of such immovable property.
There is absolutely no doubt that the Finance Supplementary (Amendment) Act, 2018 was primarily enacted to bring more and more non-filers into the tax net to maximise government revenues and ensure equity in taxation through enhancing the collection of direct taxes which are imposed on relatively richer sections of society. The objective of the Act is of course very desirable as only less than one percent of Pakistan's population falls into the category of filers as against much higher percentage of filers in most of the other countries. It was hoped that the ban on non-filers to purchase immovable property exceeding Rs 5 million in value would induce them to come into the tax net to enjoy the privilege of buying immovable property of any value. However, whether such an objective has actually been achieved or not is difficult to say at this early stage but the weaknesses of the new system are already visible. First of all, construction industry has been badly affected due to a very small number of buyers in the market falling into the 'filer' category. Obviously, this will result in a lot of unemployment and retard the growth process of the economy. Secondly, the Finance Supplementary (Amendment) Act, 2018 appears to be quite contrary to the present policy of the government to provide housing to a large share of population and construct 5 million houses itself over the next five years. If the construction activity slows down or comes to a standstill in the private sector, it will go against the declared policy of the government. Anyhow, the logic of putting a cap of Rs 5 million on non-filers when not even a small apartment is available for this amount in cities like Karachi, Lahore and Islamabad where most of the property transactions take place is beyond comprehension. On the other hand, lifting the ban altogether and revert to the process prevailing before the enactment of Finance Supplementary Act, 2018 will also not be desirable due to the need to attract millions of non-filers to the tax net through such means. In our view, the right solution could be to lift the ban altogether and prescribe a progressive tax rate on buying and selling of immovable properties exceeding the value of Rs 5 million. Such a step would encourage non-filers to come into the tax net, increase revenues of the government, help the construction industry to grow, promote employment in the country and meet the demands of land builders and developers to a large extent.