ISLAMABAD: Will the new land-price ceiling set for tax deduction make housing more expensive for the poor majority?
This question is being asked repeatedly by all those who know market, taxation and pricing mechanisms.
My answer to the question is simple: If the ceiling of prices on commercial and residential plots is reset exorbitantly high, then yes it would make house-building more difficult.
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The FBR last week announced the setting up of a committee to review the prices presently being declared for taxation by the buyers and sellers and for re-fixing them that should reflect the actual market values.
It is easier claimed than actually accomplished as resetting the taxable prices as per actual market values is a task that can be mishandled grossly by the bureaucrats that are inclined towards appeasing and benefitting certain classes and members of powerful institutions at the cost of majority – the low-income group.
They can, just by mistake if not intentionally, raise the ceilings abnormally in some areas while resetting them abnormally low in others in view of my personal experience with the tax authorities over the past three decades, both at provincial and federal levels.
The job of resetting the plot and tract prices is basically a survey enterprise. Tax survey in Pakistan is a job never done according to the principles of considerate taxation and taking in view the economic realities.
I watched the tax survey conducted under the government of Pervez Musharraf and had a long tussle with the tax authorities over the manner in which it was carried out.
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That was not on behalf of the business community but just to see what kind of consideration of economic realities the tax authorities would apply. Former Direct Taxes Member of the FBR, Vakil Khan, who was in charge of the survey, wrote to my editor against the stand I took against the survey through my reports and comments.
When the survey proved to be a fiasco, Khan did not agree that he owed an apology to the retailers who were harassed by the survey teams without paying heed to pleas against the manner of the survey. They were forced into a shutdown movement in various cities and towns of the country.
If the new survey is to be conducted with the same spirit and methods, it would again be a fiasco, this time entailing far bitter results, as this one would impact not just the property dealers and the rich class, but also those who would be facing highly un-payable tax amounts on small plots of the size of 3-7 marlas being bought for sheer shelter purposes.
Role of survey teams
While discussing a probable new ceiling for property prices, the role of survey teams is deemed vital. They are bound to approach the provincial revenue authorities for collecting data of the following: the trend of selling-buying in their areas; difference in declaring prices of plots in similar areas and in the vicinities; actual market prices; and the difference between actual market prices and those declared for official documentation.
Two things can be said about the conduct of such survey, which would eventually help the tax authorities in listing prices that would be acceptable for the purpose of taxation.
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One, the revenue and other relevant authorities have never been trained in the proper conduct of such surveys, and they might err not only because of inexperience but also because of their present role in documenting the prices in vogue, despite their knowledge about the culture of concealment of the actual worth of plots.
Two, the survey might end up triggering either abnormally high market prices or criminally low resetting of these values.
The crucial element in the price curve in any vicinity of a city, town or periphery is the demand-supply trend. Once the market values are determined, the tax authorities are not that dynamic to follow the price curve. Therefore, it is going to be a daunting task for the ill-equipped tax and other relevant authorities to carry out a price re-fixing survey.
If they do not heed caution, they might induce a countrywide protest against the prices reset at abnormally high levels.
The writer has worked with major newspapers and specialises in analysis of public finance and geo-economics of terrorism
Published in The Express Tribune, July 25th, 2016.
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