FBR imposes new approval requirement for overseas Pakistanis on property transactions

ISLAMABAD: The Federal Board of Revenue (FBR) has implemented a new requirement for overseas Pakistanis to obtain approval from the relevant Commissioner Inland Revenue (FBR) to verify their non-resident status in order to access the ‘filer’ tax rates on immovable property transactions.

The FBR has issued a legal clarification regarding the creation of withholding tax challans under sections 236C and 236K of the Income Tax Ordinance.

Recently, the FBR removed the non-resident category from its portal, replacing it with a new category for late filers. Experts have consistently voiced concerns to the government at various levels, yet no action has been taken.

Under the Finance Act of 2022, certain non-resident Pakistanis may not be required to file income tax returns based on the applicable provisions of the Ordinance. As a result, they do not appear on the active taxpayers list and may be negatively impacted by rule 1 of the Tenth Schedule of the Ordinance.

To assist non-resident Pakistanis holding a Pakistan Origin Card (POC) or a National ID Card for Overseas Pakistanis (NICOP), it was stated that the provisions of section 100BA and rule 1 of the Tenth Schedule will not apply to them for transactions where tax is payable under sections 236C and 236K, which relate to the sale or purchase of immovable property.

According to one real-estate expert, instead of facilitating overseas Pakistanis, the recent clarification from the FBR imposes an additional requirement for obtaining a certificate from the relevant Commissioner Inland Revenue. This Commissioner will be responsible for verifying the non-resident status of overseas Pakistanis.

Furthermore, the FBR has not addressed whether overseas Pakistanis or non-residents will be considered non-filers when paying Federal Excise Duty (FED) on immovable property transactions.

The current text of section (111AC) of the Income Tax Ordinance states that the provisions of section 100BA and rule 1 of the Tenth Schedule do not apply to non-resident individuals holding a Pakistan Origin Card (POC) or National ID Card for Overseas Pakistanis (NICOP) for transactions subject to tax collection under sections 236C and 236K of the Ordinance.

Section 100BA pertains to special provisions concerning individuals not listed as active taxpayers. The process for collecting or deducting advance income tax, along with the computation of income and the corresponding tax liability for individuals not listed as active taxpayers, will be governed by the rules in the Tenth Schedule.

According to the FBR’s clarification, a modification will be made to the IRIS System for any non-resident taxpayer requesting the exemption under clause 111AC. During the creation of the CPR, they will need to upload their Pakistan Origin Card or NICOP, after which a provisional PSID will be generated and sent to the Commissioner’s login.