Pakistan

Real estate set to win biggest tax amnesty

Govt official says scheme will be implemented through ordinance or bill

Shahbaz Rana July 22, 2016

PHOTO: memecenter

ISLAMABAD: The government on Thursday agreed, in principle, to offer the biggest ever tax amnesty scheme in the country’s history, which will whiten a whopping Rs7 trillion untaxed and black money currently stashed in the real estate sector

Finance Minister Ishaq Dar and representatives of the real estate sector discussed the broader contours of the amnesty scheme, which will be implemented by either promulgating a presidential ordinance or introducing a bill in parliament, said a government official. It was the third round of talks in last four days.

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After the talks, Dar told media that the next meeting will be held on Wednesday in which real estate sector representatives and FBR officials will share their respective property valuation rates. “On Wednesday, the two parties will reach a consensus as things are going towards positive direction,” he said.

Real estate sector representatives would bring their own property valuation rates of 18 main cities and FBR officials will share their rates. On the basis of both the rates, valuers will work out ‘consensus rates’. These determinations then will become the base for giving amnesty on past transactions and calculating taxes on future transactions, said the officials.

Dar ducked three repeated questions on whether the government was going to give another tax amnesty scheme and left the venue. It will be the tenth amnesty scheme in the history of the country and the third of the PML-N government in last as many years. The government’s last tax amnesty scheme to traders miserably failed, as it could bring in only 9,090 traders in the net against the claim of over one million.

The need for the tax amnesty scheme arose after the government brought legal changes to determine fair market value of the properties by amending Income Tax Ordinance through Finance Act 2016. However, a move that was initially aimed at capturing actual income gains from the property transactions would end up whitening about Rs7 trillion untaxed and black money currently parked in the real estate sector.

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The ill-conceived changes in the tax law immediately created two problems, putting a question mark over trillions of rupees transactions carried out till June 30 and the fair market value of the future transactions, said a senior government official who attended the negotiations.

A government official told The Express Tribune that it has been decided that the government would not ask the source of income of the past transactions from investors.

Abdul Rauf Alam, President Federation of Pakistan Chambers of Commerce and Industry (FPCCI), said that this issue was not only the issue of real estate and builders associations but it was the issue of every businessperson, industrialist, importer, exporter and bureaucrat.

Since the beneficiaries of the schemes are from all segments of society, the scheme is expected to pass through all the legal obstacles, said FBR officials.

“The big players in speculative business in real estate and capital markets are the beneficiaries of policies of appeasement,” said eminent tax expert Dr Ikramul Haq. He said these big players, in between politicians and corrupt bureaucrats, get their share courtesy a few leading tax experts who in connivance with some stalwart in FBR provide support to tax evaders. Haq added that the whitening of assets by compromise is a great fraud depriving the country of trillions of rupees in taxes.

According to the broader contours of the likely amnesty scheme the government would settle the past property transactions by charging a fixed tax of 4% to 5% of the price differential between the deputy collector rates and the new rates, which will be determined by next week.

Published in The Express Tribune, July 22^nd, 2016.

COMMENTS (12)

Rustam | 8 years ago | Reply @Umar: As myself being an OSP, I know and fully agree with you that all money that was invested in real estate is not black. However, it seems that government did not bother to explain the issues involved to public, while incorporating the amendment to the relevant procedures through Budget for FY17. All that is involved are calculation of capital gain upon sale,using market price versus original buy price and providing of trail of source of funds that were used to buy the property. If anybody's source is not ill gotten money and it can be proven with evidence, do you see any issue for a person like you and me? It is an issue of the persons that had parked their black money. I shall be concerned if the trail is not asked. Secondly, why is there any issue if capital gain is calculated based on actual buy and sale prices reflected by market price? Why is it not a fair deal? Relevant to the subject and as per my understanding capital gain tax is not applicable is buy date is older than ten years of sale date. Secondly, there is no wealth tax on the property bought using the funds transferred via normal banking channels and bank certificate for it is available. Accordingly, I am relaxed and happy with the changes being made.

ali_khi | 8 years ago | Reply MR nawaz why you are trying to curse our nation to its core

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Naeem | 8 years ago | Reply @Rant: A lame argument....all they are asking is to pay tax on actual buying cost and prove money trail. You weren't complaining when prices were going up.......which book says that prices can go only north. First they evade taxes and now they are crying .....

Rant | 8 years ago | Reply If the government had changed a decades rule overnight and caused the real estate market to crash then the foreign Pakistanis would never invest in their country again as their confidence would be shattered. Dr Iqramul Haq is unhappy as he was not chosen in the policy making.

Umar | 8 years ago | Reply It's not true at all its not all black money, I live and work in Europe I have personally invested in property in Pakistan, and there are lot of Pakistanis who have invested in Pakistan. We were all really depressed with this new tax on property because we already pay 42 percent taxes here on our salaries and then send remittances back home. There are other ways to catch black or illegal money. How can government overnight change rules which they haven't looked at in last 30 years and make people like me and my friends suffer who have worked so hard and invested back home due to love of our motherland even though we have options here to invest which are 100 percent safe. I think government need to take this tax back and put in place other mechanisms to catch illegal or black money. I am an active membe of pakistani community here and I have been to gatherings where everybody is talking about this in a bad way and saying if Godforbid this law got implemented they will pull back all investments and they will never invest in Pakistan because of overnight changes in policies and not considering the contribution of overseas pakistani. Property is the safest form of investment in Pakistan and we overseas Pakistanis strongly condemn this black law because it will convert our investment into half overnight. We hope government will back off from this law and find other means of increasing revenues and catching illegal money.

Ahmed | 8 years ago | Reply How can FBR determine the rates? Real estate is like stock market. The face value is always far lower than the market value. Market value is determined by the demand/supply model while the face value is the bookish value. Instead of blackmailing the population, the government should take up other vistas to generate revenue either by earning it or by saving it. For instance, we could have long gotten rid of the oil-based electricity production and moved towards Coal, Wind and water based generation. This would have saved hundreds of billions of dollars in 10 years against the import bill for oil. On the other hand, Government will have to opt for the China model to some extent. Government should plant industries and factories. For instance, Government could have developed 8-10 giant factories to produce UPS, Batteries and generators so that instead of wasting billions on importing these goods, we could purchase local supplies. Also I don't understand why the government has allowed import of cars into the country. That is the biggest leakage of dollar reserves after oil. aaaaa, scratching my hair off !!!

pokemon1088@hotmail,com | 8 years ago | Reply This is really sad that the government has capitulated so fast. The scheme they proposed originally would have been really good for this country.

Observer | 8 years ago | Reply I think this article is totally biased. There is no other way than a one time amnesty to make this money come under the tax net. This black economy was created by the provincial government by not increasing dc rates for decades. A genuine investor could not declare his sale price aside from the dc rate because no buyer would buy it at a price higher than that. Now this has to be fixed by the government itself by providing an amnesty. Otherwise what would you do. All the people lamenting over this are the people who want property to be cheaper. That is not the answer, home financing options and mortgage is the answer, if the property dropped by 50% the people crying would still not be able to purchase property, That is a matter of fact.

Ahmed | 8 years ago | Reply All corrupted money, black money, drug money, gambling money, gambling money, kickbacks are now going to be provided blanket protection by the govt........

kamran | 8 years ago | Reply A big fraud to the people who regularly pay the taxes. after this so called amnesty given to the black money holder, no one will ever going to take FBR seriously. i am deeply sad if it is really going to happen.

rasheed | 8 years ago | Reply Everything is still under negotiation, we will know what really happened after minimum 3-4 days.

faraz | 8 years ago | Reply How sad that the government and Mr Dar backed off so quickly. Even though the tax would effect people like me however it is a necessary tax in order for us move forward as a nation. Property should be taxed at market rates. There should be no concessions at all. I find it unacceptable that there will be an amnesty. Mr Dar should not back down. Ordinary voters are with him so what is he afraid of. If this law is not passed now in the manner which takes into account a tax rate on the fair market value of the property then I don't see how the issue of a large population of rich in this country will ever pay taxes. It's only salaried people who pay taxes and the rest just take a free ride.

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