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A Capital Value Tax on assets in the name of deemed income from Immoveable Property has been levied. This tax is applicable from tax year 2022 and onwards on a resident person owning capital assets. The deemed income, for the purpose of this section, shall be computed as 5% of the Fair Market Value (as determined by the FBR under section 68) of capital assets situated in Pakistan. The rate of tax on such income shall be 20%. This is equivalent to an effective tax at 1% of Fair Market Value of capital assets.
The Capital Assets as defined under this section translates to immoveable property. As such this tax is levied on immoveable property situated in Pakistan and owned by resident persons.
Exclusion
It is important to mention that an exclusion list is provided which this section does not apply. The exclusion list is as follows:
1. One capital asset owned by the resident person.
2. Self-owned business premises from where the business is carried out by the persons appearing on the active taxpayer's list at any time during the year.
3. Self-owned agriculture land where agriculture activity is carried out by the person but excluding farmhouse and annexed land. Farmhouse has been defined in this section.
4. Capital asset allotted to:
a. Martyred (Shaheed) or dependents of a Martyred (Shaheed) belonging to Pakistan Armed Forces,
b. A person or dependents of a person who dies while in the service of Pakistan armed forces or federal or provincial government,
c. A war wounded person while in service of Pakistan armed forces or federal or provincial government,
d. An ex-serviceman and serving personnel of armed forces or ex-employees or serving personnel of federal and provincial governments who are original allotees of the capital asset as duly certified by the allotment authority,
5. Any property from which income is chargeable to tax under the Ordinance and tax leviable has been paid.
6. Capital asset in the first year of acquisition on which tax under section 236K has been paid.
7. Where fair market value of the capital assets in aggregate excluding capital assets mentioned in serial no (1) to (6) above does not exceed PKR 25 million.
8. Capital assets which are owned by a provincial government or local government.
9. Capital assets owned by local authority, a development authority, builders and developers for land development and construction subject to the condition that such persons are registered with Directorate General of Designated Non-Financial Businesses and Professions.
“Farmhouse” means a house constructed on a total minimum area of 2000 square yards with a minimum covered area of 5000 square feet used as a single dwelling unit with or without an annex: Provided that where there are more than one dwelling units in a compound and the average area of the compound is more than 2000 square yards for a dwelling unit, each one of such dwelling units shall be treated as a separate farmhouse.
Reference / Citation
Circular No. 15 of 2022-23 (Income Tax and CVT) issued on 21st July 2022.
