ISLAMABAD, June 8: The introduction of flat rate of 5 per cent withholding tax across-the-board on residential rental earnings will decrease the income tax liability of bigger houses, while it will negatively affect the owners of small rental houses.

An official told Dawn that the levy would mostly affect widows and retired people who were solely depended on the rental income of their houses to feed their families.

When asked that there was no limit of exemption and value slabs according to the income, Central Board of Revenue chairman M Abdullah Yusuf told Dawn that the government wanted to bring simplicity in the system to facilitate taxpayers.

He was of the opinion that different slabs would make the system more complicated.

Under the existing law, income from property was subject to withholding tax at the rate of 5pc, if the annual rent exceeded Rs300,000. However, this provision is applicable only if the rent-payer is the federal government, provincial government, local authority, a company, a non-profit organisation or a diplomat mission.

As a result only a small proportion of this rented out property is subject to withholding tax and a huge part of this sector remained outside the tax net. Rather to make the system more effective, the CBR brought those people under the tax net which were not the owners of small houses.

Muhammad Arshad, a tax expert, told Dawn that the introduction of the new taxation valuation system for house rent would increase the liability of small house owners manifold.

He said that in case of property income, whereas a person getting gross rent of Rs135,000, who was not earlier required to pay tax, had now been taxed at Rs6,750 per annum.

And the person whose gross rental income was over Rs500,000 his income tax liability would reduce by 32 per cent under the new fixed value system. “The policies of the government are anti-poor. It is also evident from one example of sales tax. Whereas sales tax on aircraft has been abolished, it has been levied on the personal computers,” he added.

However, the collection of flat withholding tax on gross income would provide another opportunity to the tax officials to harass the taxpayers.