Property and investment woes

The government seems to have taken a step back from its earlier stance of taxing the real estate sector as it formed a committee of various stakeholders to find a solution for the issue. Through the Finance Act 2016, the government had amended Section 68 of the Income Tax Ordinance, 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 market value would be determined on the basis of valuation conducted by experts of the State Bank of Pakistan (SBP). The measure was meant to increase tax revenue from the real estate sector that has over the years gotten away with contributing little to the national exchequer while helping earn investors and stakeholders millions. The move was also meant to curb the illicit inflow of funds that have taken property prices sky-high, putting them out of the reach of the common man, as ill-gotten gains continue to outbid legal bids for ownership.

As well-intended as the move was, it resulted in a huge amount of uncertainty and unnerved investors. As was the case with the last budget, which saw traders protest at the imposition of withholding tax on banking transactions, the government has been forced to step back in its endeavour to increase tax collection, raising question marks on the entire process of formulating such proposals. The real estate sector, though, has shown phenomenal growth, driven by a shortage of houses, and its characteristics of being a taxpayers’ haven as well as providing the means to stash ill-gotten gains. Values determined by the district commissioner at the provincial level needed to be revised, but when you introduce a measure that affects money flows running in the trillions, there is a need for clarity as well as well-thought-out guidelines. The government, with its neat intentions but poor planning, has been forced on the back foot once again, signalling that another greater issue is in the making. It would have been better had consultations been held earlier and clarity provided when the measure was introduced.

Published in The Express Tribune, July 21^st, 2016.

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