Revamping real estate

When an amendment was made in the Income Tax Ordinance that would see a panel of the central bank determine property values, the real estate sector panicked. Lately, a chartered accountancy firm suggested offering an amnesty scheme to real estate investors so that they may continue pumping in money, but are not pushed away by the high level of taxes. This proposal comes after stakeholders said they may be pushed towards other alternatives as the government moved to revamp the property valuation method and increase its revenue.

After decades of stashing wealth; sometimes ill-gotten and mostly to evade taxes, the new dawn was just too much to handle. Property players and investors realised that the gains might get a jolt if property valuations, which at an official level are severely low, are determined by a panel of the State Bank of Pakistan. Capital gains tax, declaration of wealth and official records will now reflect rather greater values of property than what they are at the moment, and prices would suffer — to an extent. If there is one sector that has shown exceptional growth, it’s the real estate market. From the society’s point of view, the performance is nothing but a result of hefty investments on the back of ill-gotten gains and the sector’s ability to help evade taxes and hide wealth. This has taken affordable housing out of the reach of the common man. The sector, however, does not contribute as much to the national exchequer and this irks the government. So after years of slumber, when it decided to tap this revenue source, investors were bound to panic. However, the issue with the government’s move is that it comes without clear-cut definitions. There is no denying that current property valuations are severely low. But when you look to introduce a new method, you need to have precise details of what you intend to do. Uncertainty itself is enough to kill investments and this is precisely Pakistan’s problem. Plans are made without understanding repercussions after which negotiations are held, leading to the entire exercise being futile. 

Published in The Express Tribune, July 15^th, 2016.

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