ISLAMABAD: The real estate sector in Sindh and Punjab is facing mounting pressure “developers and housing societies are being subjected to double taxation” during property registration at the initial allotment stage.
This taxation dispute has resulted in a deadlock in issuing numerous property registries across Punjab. The impasse stems from provincial tax authorities’ interpretation of Section 236C of the Income Tax Ordinance, 2001, which they argue applies to housing societies and developers, creating uncertainty and delays in property transactions.
Hassan Bakhshi, the chairman of the Association of Builders and Developers of Pakistan (ABAD), highlighted the issue while speaking to The News. He said that many registries are currently pending before the sub-registrars.
According to him, the Board of Revenue (BOR), Punjab, and the Punjab Land Revenue Authority (PLRA) have taken the stance that Section 236C of the Ordinance applies to allotment registries as well.
As a result, housing societies are being required to pay withholding tax under this provision. “This has exposed the real estate sector to double taxation,” he said.
According to him, the Board of Revenue (BOR), Punjab, and the Punjab Land Revenue Authority (PLRA) have taken the stance that Section 236C of the Ordinance applies to allotment registries as well. As a result, housing societies are being required to pay withholding tax under this provision. He warned that this interpretation has led to double taxation for the real estate sector.
It is pertinent to mention that tax under section 236K is applicable on the transfer and allotment of immovable property; however, the tax under section 236C is applicable only on the transfer of immovable property.
Allotment of property pertains to the first sale of immovable property by developers whereas transfer of property pertains to the subsequent transfer of titles from purchasers to sellers.
However, the 236K clause of the Income Tax Ordinance, 2001 says that tax is not applicable on the first sale or first registry provided that where tax has been collected along with the instalments.
No further tax under this section shall be collected at the time of transfer of property in the name of the buyer from whom tax has been collected in installments which is equal to the amount payable in this section.
Bakhshi said that taxing developers and housing societies at the time of the first sale is unjustified as they pay taxes under section 7-F, but the provincial authorities also charge the taxes from them at the time of the first sale or first registry of plots or flat which is equal to double taxation.
He said that their tax refunds take time of one year to be cleared and sometimes these are not paid, and for next year, they have to get special permission from the commissioner for refund payments. Owing to these issues, real estate is facing a liquidity crisis, he added.
When contacted, Zaman Watto, who is a Tax Member Punjab Board of Revenue, said that the sub-registrar is our withholding agent. Whenever the right of registry occurs, 236C is applied. He said even if it is the first registry after allotment, the seller will come under 236C jurisdiction.
However, if the housing society keeps the allotment with itself as a file and it does not come to the sub-registrar for registry purposes, then the Punjab BoR jurisdiction does not apply, but when it comes to the registry’s purpose even at an allotment level, 236C is applied.
