Taxing real estate: Govt forms body to address concerns of property dealers

Published: July 19, 2016
Bahria Icon Tower in Karachi's Clifton. PHOTO: AFP

Bahria Icon Tower in Karachi's Clifton. PHOTO: AFP

ISLAMABAD: The government on Monday showed its intention to retreat from its stance of taxing gains from the property business at fair market value and constituted a committee of stakeholders to find a solution after property transactions came to a halt.

The committee would comprise real estate agents, representatives of the Federation of Pakistan Chambers of Commerce and Industry (FPCCI) and the Federal Board of Revenue (FBR).

The constitution of the committee underscores flaws in the budget-making process, which the National Assembly passed just last month.

The decision to constitute the committee was taken after a meeting between the tax authorities and the real estate sector representatives.

Special Assistant to Prime Minister on Revenue Haroon Akhtar Khan chaired the meeting.

Property market expects govt to take back controversial tax decisions

Through the Finance Act 2016, the government got an amendment to Section 68 of the Income Tax Ordinance approved, allowing the FBR to determine the fair market value of any property without taking into consideration the value fixed or notified by any provincial authority.

The fair market value will be determined on the basis of valuation done by a panel of approved experts of the State Bank of Pakistan (SBP).

Till June 30, the value of property for tax purposes was determined on the basis of rates set by the district commissioner, which in most cases were several times lower than the prevailing market rates.

The real estate agents claim that after recent changes in the law, the property transactions in major cities have stopped.

The estimated size of black money parked in real estate is around Rs7 trillion, according to officials.

Experts argue that such vast powers to the FBR or the SBP nominated experts would open new avenues of corruption – a concern also expressed by the real estate agents during Monday’s meeting.

The committee would submit its recommendations to Finance and Revenue Minister Ishaq Dar by the end of current week, said an official of the FBR.

Govt may double tax on transfer of properties

“Stakeholders have expressed concern over four clauses of the income tax law that deals with taxation on real estate in addition to objecting to the procedures being adopted to calculate these taxes,” said Chaudhry Abdul Rauf, President of the All Pakistan Real Estate Agents Association.

He said the association objected to the government’s decision to charge a flat 10% capital gains tax on properties sold within five years of the holding period. “The association sought reintroduction of the slab rates instead of charging the fixed rate,” said Rauf.

He said the valuation system under Section 68 was not acceptable and feared it would open new avenues of corruption.

The association also objected to the increase in withholding tax on the sale and purchase of properties in the budget for 2016-17.

Solution offered

Naveed Zafar Ashfaq Jaffery & Co – a chartered accountancy firm – has proposed three solutions. It has suggested that a one-time amnesty scheme may be introduced for declaring the property at the actual cost and paying taxes at 2% or 3% of the amount of difference between the declared cost and the actual cost.

Such differential amount may be added to the declared assets after availing the scheme and payment of taxes.

The officials said any solution would be for the future and past property transactions might have to be condoned by offering an amnesty scheme.

Property dealers asked the government to gradually increase the property valuation over a period of five years, however, government officials proposed the increase in rates over three years.

The new property valuation rates would be lower than the fair market value but significantly higher than the rates fixed by the district commissioner, they added.

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Reader Comments (7)

  • Arif
    Jul 20, 2016 - 3:38PM

    Disappointing to see the government retreat in the face of pressure from a bunch of corrupt and crooked individuals. While the CGT issue should be discussed and perhaps some concession can made on that, the government should not move back from valuing transactions at market rates. Going back to the previous DC structure, or anything other than the true value, will only lead to black money being hidden in this sector. The real estate agents need to find ways to make an honest living instead of feeding off corruption.Recommend

  • Hasan Khan
    Jul 20, 2016 - 8:40PM

    Very difficult to understand or appreciate the suggestion of amnesty
    In current day and time,amnesty means pay regular tax on undeclared asset and in some case pay rduce penalty.Not 2-3% of amount evaded.Are people who paid normal taxes lesser citizens of the country an tax evaders higher class of citizens?

    One has to ralise that in Pakistan tax evasion is so common and frequent because of in-efficiency of Federal Board of Revenue and unless tax administration in Pakistan is reformed,such mess will continueRecommend

  • hubara bustard - a rare bird
    Jul 20, 2016 - 9:50PM

    I am amazed to see the influence dalaals (urdu meaning of English word dealer) are trying to exercise on incumbent govt. I suggest a better amnesty scheme. Owners of all houses should declare their source of income and property they own. Anything undeclared, or hidden, should be confiscated by govt for good. Those who declare all the property but fail to justify source of income, should be audited. Just apply this rule to bigger cities and it will cleanup real estate sector.Recommend

  • Malik Tariq
    Jul 21, 2016 - 12:38AM

    Failure of Fed Govt not to enforce tax collection based on actual market value will lead to further building up Black Economy, depriving state of vital taxes to fund vital projects on health and education for masses. This would also encourage Land Mafia and Criminal Economy to boost further, leading to more debts and discourage investors from putting their money in industry. The top civil and uniformed bureaucracy and political elite are all involved in this real estate Mafia, which is Rs 7 Trillion and taxes on it are only Rs4 Billion. Recommend

  • Umar
    Jul 22, 2016 - 6:35PM

    This law is totally unacceptable and unfair for us over seas Pakistanis who have heavily invested in PakistanI property market.

    No overseas will invest if they implement this crazy law. Out money that we invested in Pakistan is not black. Recommend

  • Nasir Khan
    Jul 27, 2016 - 1:39PM

    The law Government has proposed should be implemented for multi dimentional benifits for common peoples of Pakistan. The black money should not be used to deprive off common people from shelter. The price hike eliminate the chances for salaried and tax payers to by residential plot in develloped colonies rather it became sole right of owners of black money.
    Government should impliment the query for source of income and the detail of tax paid. This will stop the black money investment in property for parking and multiplying. If such a huge money is investmented in stock market or industial sector, will bring benifit to Pakistan. positiveRecommend

  • Nabeel Rasool Chaudhry
    Aug 4, 2016 - 5:58PM

    Overseas Pakistanis will suffer and one way or other it ll effect the economy of Pakistan as well because working abroad and investinng money in PAK was indeed beneficial for the economy and government of PAK. Eventually this change in tax etc is discouraging everyone to invest in their homeland. At the same time it will close doors to lot of real estate agents who were having only source of bread through this business. May ALLAH help us our leaders and nation to decide well.Recommend

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