Overseas Pakistanis seeking to conduct immovable property transactions in Pakistan must now receive approval from the Commissioner Inland Revenue (FBR) to validate their non-resident status. This step is required to qualify for the tax rates that apply to “filers” under sections 236C and 236K of the Income Tax Ordinance.
The Federal Board of Revenue (FBR) issued a clarification about the creation of withholding tax challans and refuted false information spreading on social media about supposed new tax breaks for Pakistanis living overseas. Real estate professionals stressed that no new exclusions had been introduced, emphasizing the need of honest reporting on such issues.
Tax Status Clarifications
Some non-resident Pakistanis are exempt from filing income tax returns under the Finance Act 2022 due to the Ordinance’s restrictions. However, this frequently removes them from the Active Taxpayers List (ATL), subjecting them to higher tax rates. To address this, the FBR has emphasized that people with a Pakistan Origin Card (POC) or National Identity Card for Overseas Pakistanis (NICOP) are exempt from the restrictions of section 100BA and Rule 1 of the Tenth Schedule regarding property transactions.
Despite this statement, the FBR has implemented a new level of verification. Non-resident Pakistanis must now submit their POC or NICOP to the FBR’s IRIS portal. This commences a process in which the Commissioner of Inland Revenue (CIR) verifies their nonresident status.
Lengthier Process for Tax Exemptions
Tax experts point out that, while exclusions for non-resident Pakistanis already exist, the new rule may lengthen the process, thereby delaying property transfers. After a non-resident uploads the necessary documents, the Chief Commissioner of Inland Revenue (CCIR) assigns the case to the CIR. Following verification, the CIR will notify the taxpayer of their approval via SMS or email.
Recognizing potential delays, the FBR has directed its Chief Commissioners to complete these verifications within one working day to prevent disruptions.
Impact on Overseas Pakistanis
The adoption of this new verification step has sparked worries among Pakistanis living abroad, notably about the perceived lack of assistance for non-residents despite their contributions to the national economy. Experts have long encouraged the government to simplify tax regulations affecting foreign nationals, but substantial answers remain difficult.
The FBR’s approach comes amid a broader set of issues, including a Rs. 166 billion shortfall in tax revenues in November. While efforts to tighten rules aim to close tax compliance gaps, the need to strike a balance between enforcement and ease of doing business for Pakistanis living overseas remains a serious concern.
Key Provisions of the Ordinance
Section 100BA provides particular conditions for persons who are not on the ATL, including tougher rules for advance tax collection. Non-resident individuals possessing a POC or NICOP, on the other hand, are excluded from these property transaction rules under paragraph 111AC.
As the government faces economic challenges, the new verification requirement highlights a larger push for harsher compliance procedures. Overseas Pakistanis should stay aware and update their tax papers to minimize any delays in property transactions.
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