Property tax measure: Govt overestimates revenue collection from real estate
Gap between market value determined by official valuers and DC rates not as wide as govt initially worked out
Bahria Icon Tower in Karachi's Clifton. PHOTO: AFP
ISLAMABAD:
The gap between prevailing market prices and official property rates is not as wide as initially perceived by authorities, except in Karachi and Islamabad, said a top aide to Prime Minister Nawaz Sharif Wednesday.
Still the market value, assessed by government-hired valuers, was at least three to 15 times higher than the district commissioner-determined (DC) rates, said Haroon Akhtar Khan, Special Assistant to Prime Minister on Revenue. The difference is more profound in the two cities than elsewhere and underscores the extent to which the real estate sector has escaped taxation.
These rates had been set for working out stamp duties on property transactions, which eventually became a base for determining income gains and hiding the real values of properties.
Govt may double tax on transfer of properties
Tax authorities’ initial opinion was that values declared by property dealers and investors were 50 times to 100 times lower than the prevailing market rates. However, this has turned out not to be the case.
Real estate sector view
The representatives of the real estate sector on Wednesday also shared their fair market valuations of 21 major cities of the country. As expected, their values were far lower than the values worked out by the government-hired valuers. According to real estate sector representatives, market values are twice to five times higher than the DC rates.
Tough negotiations to work out fair market values of the properties are expected due to significant gap between stakeholders-determined rates and government rates. The new determinations will become the base for giving tax amnesty scheme on past transactions, estimated at Rs7 trillion.
The government is expected to increase DC rates to 50% of the to-be determined fair market values. After that, it may set a 5% rate to whiten the black money parked in the real estate. The 5% will be charged on the basis of difference of DC rate and the newly determined rate, therefore, the stakeholders on Wednesday pitched lower valuations.
Real estate set to win biggest tax amnesty
Govt’s misconception
The lower than perceived market values of the properties shows how much the government thought it could earn from the real estate sector. It also dispels the impression, to some extent, that stakeholders were grossly understating the values aimed at hiding their real incomes and evading taxes that the government gets on property transactions and the gains made on these transactions. Still, the exchequer was sustaining losses due to three to 15 times gap between the fair market value and DC rates, depending upon the city and the area.
In the budget 2016-17, the taxable period for capital gains on disposal of immovable property was extended from 2 years to 5 years. The CGT rate was kept unchanged at 10%. Through an amendment to section 68 of the Income Tax Ordinance, 2001, the task of determining fair market price of property has been given to professional valuers approved by the SBP. This caused uncertainty in the real estate sector, halting transfer of properties.
FBR’s valuation
Haroon Akhtar Khan said that the FBR has completed the valuation exercise, which has also been vetted by experts. He said that there was no major difference between the valuations worked out by the Federal Board of Revenue and the values assessed by the government-hired experts.
Will the new property survey make housing too expensive for Pakistan's poor?
He said the information has also been exchanged with the real estate sector representatives.
The special assistant said that in case of Karachi, the values of the properties were 5 times to 13 times higher than the DC rates. Similarly, in case of Islamabad, the difference between DC rate and fair market value was in the range of 8 times to 15 times.
The fair market value of the properties in Peshawar was about 6 times to 8 times more than the DC rates.
He said the difference was not much in case of Lahore due to occasional increase in DC rates. Akhtar said that in case of small cities, the gap between the official DC rates and fair market value was also not big.
An official of the FBR said that the market rates in Gujranwala, Sialkot and Gujrat were about 200% more than the DC rates.
Published in The Express Tribune, July 28th, 2016.
The gap between prevailing market prices and official property rates is not as wide as initially perceived by authorities, except in Karachi and Islamabad, said a top aide to Prime Minister Nawaz Sharif Wednesday.
Still the market value, assessed by government-hired valuers, was at least three to 15 times higher than the district commissioner-determined (DC) rates, said Haroon Akhtar Khan, Special Assistant to Prime Minister on Revenue. The difference is more profound in the two cities than elsewhere and underscores the extent to which the real estate sector has escaped taxation.
These rates had been set for working out stamp duties on property transactions, which eventually became a base for determining income gains and hiding the real values of properties.
Govt may double tax on transfer of properties
Tax authorities’ initial opinion was that values declared by property dealers and investors were 50 times to 100 times lower than the prevailing market rates. However, this has turned out not to be the case.
Real estate sector view
The representatives of the real estate sector on Wednesday also shared their fair market valuations of 21 major cities of the country. As expected, their values were far lower than the values worked out by the government-hired valuers. According to real estate sector representatives, market values are twice to five times higher than the DC rates.
Tough negotiations to work out fair market values of the properties are expected due to significant gap between stakeholders-determined rates and government rates. The new determinations will become the base for giving tax amnesty scheme on past transactions, estimated at Rs7 trillion.
The government is expected to increase DC rates to 50% of the to-be determined fair market values. After that, it may set a 5% rate to whiten the black money parked in the real estate. The 5% will be charged on the basis of difference of DC rate and the newly determined rate, therefore, the stakeholders on Wednesday pitched lower valuations.
Real estate set to win biggest tax amnesty
Govt’s misconception
The lower than perceived market values of the properties shows how much the government thought it could earn from the real estate sector. It also dispels the impression, to some extent, that stakeholders were grossly understating the values aimed at hiding their real incomes and evading taxes that the government gets on property transactions and the gains made on these transactions. Still, the exchequer was sustaining losses due to three to 15 times gap between the fair market value and DC rates, depending upon the city and the area.
In the budget 2016-17, the taxable period for capital gains on disposal of immovable property was extended from 2 years to 5 years. The CGT rate was kept unchanged at 10%. Through an amendment to section 68 of the Income Tax Ordinance, 2001, the task of determining fair market price of property has been given to professional valuers approved by the SBP. This caused uncertainty in the real estate sector, halting transfer of properties.
FBR’s valuation
Haroon Akhtar Khan said that the FBR has completed the valuation exercise, which has also been vetted by experts. He said that there was no major difference between the valuations worked out by the Federal Board of Revenue and the values assessed by the government-hired experts.
Will the new property survey make housing too expensive for Pakistan's poor?
He said the information has also been exchanged with the real estate sector representatives.
The special assistant said that in case of Karachi, the values of the properties were 5 times to 13 times higher than the DC rates. Similarly, in case of Islamabad, the difference between DC rate and fair market value was in the range of 8 times to 15 times.
The fair market value of the properties in Peshawar was about 6 times to 8 times more than the DC rates.
He said the difference was not much in case of Lahore due to occasional increase in DC rates. Akhtar said that in case of small cities, the gap between the official DC rates and fair market value was also not big.
An official of the FBR said that the market rates in Gujranwala, Sialkot and Gujrat were about 200% more than the DC rates.
Published in The Express Tribune, July 28th, 2016.