Property valuation deal violates 2013 SC ruling

Published: August 2, 2016
Judgment says govt cannot delegate its powers of levying taxes to its organs. PHOTO: WIKIPEDIA

Judgment says govt cannot delegate its powers of levying taxes to its organs. PHOTO: WIKIPEDIA

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.

Property valuation deal violates 2013 SC ruling

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.

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“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 2nd, 2016. 

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Reader Comments (8)

  • karachi3
    Aug 2, 2016 - 9:02AM

    This whole Amnesty regarding property valuation is a very serious mistake and is ill advised and has caused the nation loss of Billions of Rupees.

    With due respect, this amnesty scheme which was preceded by Traders Amnesty scheme has totally destroyed the tax culture in Pakistan ( of what little that existed)Recommend

  • Rehmat Ali
    Aug 2, 2016 - 9:29AM

    What about tax on Agricultural income? Every year in budget, relief given on agricultural business related things such as subsidies on fertilizer,electricity etc. The reason are,
    Agricultural lands belongs to most of elites,defense personals,rulers,influential landlords,policy makers and corrupt politicians.
    So called political parties are reluctant to bring Agricultural income in tax net. Every time looks to impose more taxes on things other than agricultural income. Its a matter of question!Recommend

  • Aug 2, 2016 - 12:23PM

    Why exemption for judges, journalists and bureaucrats from tax levy?

    To allow them to run property business and make more money. They are already making lot of EXTRA MONEY.Recommend

  • Rehan Raja
    Aug 2, 2016 - 1:04PM

    There is no problem in the capital gain tax, however:
    1. Exempting armed forces/martyrs etc
    2. Government employee etc

    is not fair, rules are supposed to be equally for all. Apart from all this what assurance is that the tax money won’t land in the corrupt hands of class mentioned above. This has been the trend for years. I have been paying property and income tax since twenty years now. There is only one street light working in my street. When I call wapda for electricity problems at my house they come after four hours and temporarily fix the problem and promise to fix it within three days. They clearly say that if you have an “sifrash” then you can get it fixed in a day. The roads are full of pot holes. When I take my daughter to a CDA park, majority of the play area items are broken, poorly maintained grass, makes it look like a jungle. The CDA garbage pickers asks for money every week, and if I miss to pay him, he doesn’t come for a week.

    So the question is, where will this tax money go? in corruption? buy Ishaq Dars son another Lamborhgini? or stashing money in their safes? cause clearly they haven’t been using the money to improve lives of anyone yet alone the tax payers.

    So I would like to mention again, no harm if they are applying the tax, however we should see where the tax moneys goes and it should improve the quality. Not improve the politican, armed forces, and goverment civilians lifes buy getting them new cars, new allowance and houses. This is not fair, else there are 100 hundred ways how these taxes can be evaded and will be evaded.Recommend

  • H.A.Khan
    Aug 2, 2016 - 1:11PM

    Why is the State differentiating between citizens?
    I can understand and support tax concessions to Shaheeds, but why to other Government servants?Recommend

  • Blackbuster
    Aug 2, 2016 - 2:24PM

    Apparently the values agreed between the minister and the ‘stakeholders’ (code for black money holders and facilitators) are still far below the actual market values. So black money will still be parked in this sector, and life will go on pretty much as before. Anyone who was familiar with the gap between DC rates and market value (upto 60 times) in DHA Phase 8, Khi will understand that a doubling or even a tripling of the DC rate is a joke.

    Interesting also that people who pay taxes and do not have an interest in hiding the source of their wealth are not considered ‘stakeholders’ by the government.Recommend

  • rana
    Aug 3, 2016 - 9:21AM

    this law will be struck down by high courtRecommend

  • Blackbuster
    Aug 3, 2016 - 3:02PM

    @rana: I certainly hope so. The values notified by FBR are a joke as well, and are far removed from actual values. There is no moral and economic justification for undervaluing property on documentation. The only rationale is to allow people to hide their black money.Recommend

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