Bigger houses bigger taxes

• Houses measuring two kanals and above taxed Rs 0.5m, while Rs 1.5m tax for houses exceeding eight kanals size

The Punjab government has come hard on rich and mighty levying heavy taxes on the rich living in the posh localities of the city through Punjab Finance Act 2013 imposing Rs 0.5 million to Rs 1.5 million one-time luxury tax to houses measuring two kanals and above.

It has been proposed to charge, on one time basis, luxury tax on A Category houses measuring two kanals and above. Tax will increase with increase in the size with maximum limit of Rs 1.5 million for houses of eight kanals and above.

Moreover, according to the Finance Bill tabled on Monday’s budget session in the provincial assembly, the government has also levied Capital Gain Tax of one to five percent on the sale of property sold during different periods of time after its acquisition.

The tax on houses will be payable in four installments within a year commencing from July 1 in four equal installments before the expiry of each of the four quarters of the year.

Where an installment of the luxury tax is not paid within the prescribed time, surcharge equal to two percent of the outstanding tax per month shall be paid and where surcharge is paid during a month, the surcharge shall be prorated on daily basis for the days of the last month in default.

The tax levied under Subsection (1) shall be paid on one time basis provided that where a taxable house is constructed after the commencement of this Act, the luxury tax shall be likewise paid on one time basis within one year of the completion of construction of such house.

WIDOWS EXEMPTED:

The bill however exempts widows from the tax to the extent of one house up to four kanals.

A residential house, measuring not exceeding four kanals owned by a widow and in which she is residing, shall be exempt from the payment of the luxury tax levied under Subsection (1) provided that where a widow owns more than one houses liable to luxury tax, she shall be entitled to exemption only in respect of one such house.

Where the luxury tax has not been levied on a house owned by a widow, the whole amount of tax shall be payable on such house by her legal heirs or any other transferee riot being a widow within one year of her demise or transfer.

PARENTS TO PAY THE TAX IF PROPERTY IS OWNED BY MINOR:

In case a house liable to luxury tax under Subsection (1) is registered in the name of a minor, the liability to pay the luxury tax shall be on the parents or the guardian of the minor.

No tax shall be levied, charged or paid in case of a house which is sold or transferred after the payment of the luxury tax once due thereon.

The luxury tax under this section shall, mutatis mutandis, be assessed, paid, recovered, administered and regulated as if it is a tax under the Punjab Urban Immoveable Property Tax Act, 1958 (V of 1958).

In the 18th Amendment, the right of the provinces to levy and collect taxes on capital gains on immoveable property has been categorically accepted in the Constitution. It has been, therefore, proposed to levy and collect Capital Gains Tax from the seller on adval basis (tax rate decreasing with the increase in retention period: between 5% to 1%) in case of immoveable properties purchased and sold within a period of five years. No tax shall be charged on immoveable properties acquired, retained and sold beyond five years.

The government believes that the proposed tax will bring fiscal benefits to the provincial exchequer, discourage speculations in real estate business and help keep the prices of properties at reasonable level.

REVISED VALUATION LIST IN PLACE:

Government revised valuation list of properties as required under the Punjab Urban Immoveable Property Tax Act, 1958 after a period of 12 years. This list will be enforced for the purpose of assessing and collecting the property tax from the start of the next year.

RATIONALIZING THE TAX:

Since last revision, rental values of properties have increased manifold, therefore, in order to rationalize increase in tax liability of taxpayers, the government intends to reduce rate of tax from 20% to 100/6.

Existing exemption of property tax on residential houses measuring up to five marlas was also available to high-valued small residences including costly residential apartments in posh areas. It has been proposed to confine the exemption to such residential properties only in areas populated by middle and lower classes by excluding such small size but high value properties of A category.

Currently, immoveable property in urban areas measuring at least 10 marlas has been exempted from Capital Value Tax (CVT). Thus, some high valued properties in urban areas have also been enjoying exemption on the basis of physical measurement. Hence, it is proposed to link the exemption with value of the immoveable property. This will bring progressivity in CVT and enhance equity on taxation on the immoveable property transactions.