FBR Announces Tax Exemption for Overseas Pakistanis
The Federal Board of Revenue (FBR) has recently released Circular No. 3 of 2023, shedding light on important tax implications for non-residents, including non-resident Pakistanis, concerning movable property under section 7E of the Income Tax Ordinance 2001. Notably, non-residents are now exempt from tax payments on movable property transactions, signifying a crucial change in tax regulations. This move by the FBR aims to streamline property sales and transfers, relaxing specific procedural requirements outlined in Section 7E and even waiving the necessity of exemption certificates under specific circumstances. Notably, this explanatory Circular will hold sway during a transitional phase, awaiting the implementation of an automated system.
It’s important to mention that the conditions stated in Circular No. 1 of 2023-24 do not necessitate a certificate from the Commissioner. Nevertheless, entities transferring immovable property must maintain precise records of sellers’ or transferors’ details and relevant documentation for properties covered under the circumstances above. Beginning from the issuance date of the Circular, these transferring authorities must share recorded data every week with the Chief Commissioner IR of the Regional Tax Office overseeing the seller or transferor. However, the provisions of Section 7E do not extend to real estate utilized for land development and construction owned by local authorities, development bodies, builders, and developers, provided they are registered with the Directorate General of Designated Non-Financial Business and Professions (DNFBP) according to Circular No. 1 of 2023-24.
In cases where property is purchased in the initial year and tax has been paid under section 236K, section 7E provisions are inapplicable. To finalize transfers, the transferring body must furnish a Computerized Payment Receipt (CPR), incorporating specific details like CPR number, seller or transferor’s name, CNIC number, tax paid under Section 236K, payment date, and tax year. It’s worth mentioning that specific individuals, such as those who pass away while serving in the Pakistan Armed Forces or the Federal and Provincial Government, or sustain war injuries during service, veterans, and serving members of the armed forces, are exempt from the purview of section 7E as per the Income Tax Ordinance, 2001.
The intricacies surrounding the implementation of section 7E have spurred public discussions regarding the sale or transfer of real property as stipulated in sub-section (2A) of section 236C of the Ordinance. In light of this, Circular No. 1 of 2023-24 has been partly revised and supplemented to address concerns associated with the newly added sub-section (2A). The FBR further clarifies that the contents of the Circular will not apply to cases falling under the jurisdiction of the Lahore High Court in connection with the judgment in WP no. 52559 of 2022, dated 06-04-2023, unless and until the said judgment is reversed, suspended, or vacated through an appeal to the Inter Court of Pakistan or the Supreme Court of Pakistan.
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