Lahore’s real estate market challenges new tax rules

Says approval for ordinance not taken from cabinet, violates judgment of SC

LAHORE: The realty market in Lahore has challenged the constitutionality of the Income Tax (Amended) Ordinance 2016, which aims to impose new taxations based on fresh property valuation by Federal Board of Revenue (FBR).

The move has been made by Defence Housing Authority Lahore agents in the Lahore High Court, after they failed to get a response of the letter they wrote to the finance minister, FBR chairman and Prime Minister’s Special Assistant on Revenue Haroon Akhtar Khan.



The letter asked concerned authorities to levy tax on provincial rates (DC value) instead of FBR valuation table as the new land rates have nearly halted the property market in all major cities of Pakistan.

The ordinance has been challenged which has made amendments in section 68 and section 236C of the Income Tax Ordinance 2001.

Meanwhile the markets of Lahore, Karachi and Islamabad continue to be turbulent, and trading activities have nearly halted.

Defence and Clifton Association of Real Estate Agents President Raja Mazhar told The Express Tribune that it is unlikely that the real estate markets will gain the same momentum before the imposition of recent taxes.

“Even if government rolls back its new taxation policy for realty sector, people will remain cautious and will not involve fully, fearing similar taxation measures in future,” Mazhar said, adding that revenue generation has been declining historically for both federal and provincial governments as only genuine buyers and sellers are transferring their lands or housing units.

The federal government has increased the ratio of Advance tax for buyers to 2% from 1% for tax filers and 4% from 2% for non-tax filers, in the recent budget.



Similarly the advance tax ratio for sellers, which is adjustable against Capital Gain Tax (CGT) in annual returns, has been increased from 0.5% to 1% for filers and 2% from 1% for non-filers. Additionally, a CGT of 10% has been imposed if property is sold within one year of purchase. The CGT ratio’s reduced to 7.5% and 5% respectively, if properties are sold within two and three years of its purchase. All new taxes will be deducted on new property rates evaluated by the FBR.

Mazhar said that people now have the holding power, and no one likes to sell his or her property at loss and by paying huge taxes. “The government will soon realise the sudden drop in revenues by calculating the first three months of this fiscal year with the corresponding period,” he added.

The leaders of agents associations are trying to once again negotiate with the government either to lower down the taxation ratios or to collect those taxes on old provincial rates.

“Investors are looking to trade in low value plots, which cannot exceed Rs4 million these days,” said Mian Talat, former president of DHA Estate Agents Association. However, majority of the market is still waiting for some breakthrough, which could lower the tax ratios to regain their trust in realty market, Talat added.

Market experts said that the two valuation methodologies, DC rates and FBR rate do not make much sense from a legal point of view.

Published in The Express Tribune, September 11^th, 2016.

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