Property valuation deal violates 2013 SC ruling

Judgment says govt cannot delegate its powers of levying taxes to its organs

ISLAMABAD: The government’s decision to empower the Federal Board of Revenue (FBR) to determine fair market price of a property violates a Supreme Court judgement that prohibits the state from delegating such powers to its organs.

President Mamnoon Hussain promulgated the Income Tax (2nd Amendment) Ordinance 2016 Sunday night to give immediate effect to a property valuation agreement between the government and the realty sector.



In the ordinance, the government announced two major tax exemptions on the transfer of properties for ‘dependants of martyrs’ and parting benefits for ‘employees in the service of Pakistan’, defined under the Constitution as a one-time benefit.

The discrimination of exempting land that bureaucrats, judges and journalists obtained from the government from capital gains tax (CGT) has the potential of creating frictions between the common man and the ‘privileged groups’.

The government used the opportunity to appease some selected groups in addition to giving vast powers to the revenue authority to determine fair market values of properties in the future.

“The board [FBR] may, from time to time, by notification in the official gazette, determine the fair market value of immovable property of the area or areas as may be specified in the notification,” reads the ordinance.

Such vast powers are not only against the decision of the Supreme Court but may also undermine transparency, according to independent legal experts. The decision is also against the spirit of withdrawing the FBR’s powers of issuing statutory regulatory orders famously called SROs to change tax rates.

In the famous Engineer Iqbal Zafar Jhagra vs the Federation of Pakistan (2013) case, the apex court had ruled that the federal government could not delegate its powers of levying taxes to its organs.

“Viewed in this context what the Constitution committed to the legislature as its primary obligation to be discharged by it with exercise of powers conferred on it, cannot be entrusted by the legislature to another organ of the state or to a body of its own creation.



“That would negate the very basic arrangement adopted by the Constitution and in its place create a mode of the discharge of legislative function in a manner not envisaged therein or contrary to the instrument, which constituted it,” says the 2013 judgment.

Under a deal, the FBR and realty stakeholders have agreed on new valuation tables -- for the purposes of taxation -- of property prices in 21 major cities of the country where the rates are higher than the existing deputy commissioner (DC)-approved rate of property but far lower than fair market values. Now, according to the ordinance, the FBR can change these rates.

Under an agreement with the IMF, the government withdrew the FBR’s powers to issue SROs. It entrusted such powers to the Economic Coordination Committee (ECC) of the cabinet, and that, too, can be issued under certain conditions.

The government has created distortions in society by exempting the gains made by judges, journalists and bureaucrats from tax levy.

The government has also exempted plots sold by dependents of martyrs of armed forces and officials of the federal and provincial governments who die while in service. This exemption is justified given the kind of sacrifices the personnel of armed forces were rendering for the nation.

According to the Naveed Zafar Ashfaq Jaffery & Co, commentary of the presidential ordinance, the CGT has been exempted on the sale of property if the seller is a dependant of a Shaheed (martyr) of the armed forces, adding the CGT has been reduced by 50% in case of first-time sale of property, acquired or allotted to ex-servicemen, being the original allottee of the property.

Published in The Express Tribune, August 2^nd, 2016.