Government Seeks to Impose tax on Suspicious Gifts transactions among Relatives

Taxation of Gifts In Pakistan Proposed in Budget

The standing committee informed and proposed that an amendment is under way to streamline legality that deals with the tax structure of the gifts given to the relatives.

“Provided that, if the capital asset acquired through gift then disposed of within two years of acquisition and the Commissioner satisfied that such gift arrangement seems a part of tax avoidance scheme. Then the provisions of sub-section (3) of section 79 of Income Tax Ordinance, 20021 shall apply for the purpose of determining the cost of asset in the hands of recipient of the gift,” according to the proposal.

“The gift has become a tool to avoid taxes,” said Dr Najeebullah Malik. Under the existing law, gifts are exempted from taxes. A large number of such individuals with high net worth are using the option as safe means of transferring income, assets and wealth without contributing to the national revenue.

A source in the FBR said in tax year 2020, about Rs170 billion worth of gifts given by the taxpayers. These gifts exempted from the taxes. Most importantly, the government wants to impose taxes on gifts that they dispose of within two years. Explained by Senator Farooq Naek of the PPP. But PTI’s Senator Mohsin Aziz opposed the move, terming it “impractical”.

People buy an asset today then transfer it in the name of a relative. Few years later for onward sale to avoid capital gains tax. Tariq Chaudhry, Member Inland Revenue Policy said.

The government has again proposed to change definition of the relative. From the existing definition of “grandparents, parents, spouse, brother, sister, son or a daughter”. The expression “relative” shall substitute”, according to the proposal. Relative means 1. An ancestor or descendent of any of grandparents or 2. An adopted child of the individual 3. or of a spouse of the individual.

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