Despite FBR opposition: NA panel approves tax amnesty for realty sector

Scheme, if cleared by parliament, will whiten an estimated Rs7 trillion of black money

ISLAMABAD: A National Assembly panel on Tuesday approved a blanket tax amnesty scheme for the realty sector to whiten an estimated Rs7 trillion of black money invested in the sector, despite stiff opposition by the Federal Board of Revenue (FBR).

The NA Standing Committee on Finance and Revenue introduced amendments in the Income Tax Amendment Ordinance 2016, which if passed by the lower house, will allow the realty sector to legalise black money by paying a nominal 3 per cent tax. A sub-committee of the NA panel had thrashed out the scheme.



The scheme will be seen as a defeat of the finance ministry that just five months back vowed to force people to pay their taxes on property transactions at fair market values. Instead of recovering taxes on fair market, the government is going to clean people’s black money. It will be third comprehensive amnesty package given by the PML-N government in past three years.

“FBR may charge additional 3% tax to the extent of the amount which cannot be reconciled in the wealth statement and the scheme may only be limited to the property sector,” reads an amendment inserted by the standing committee in the Income Tax Ordinance Amendment Bill.

The bill was originally aimed at providing a permanent legal cover to property FBR-determined valuation rates, which the government had implemented by promulgating an ordinance in July this year aimed at enhancing collection from the sector. The FBR notified rates were significantly higher than district commissioner (DC) rates.



“We have different point of view on the committee’s recommendation” for the amnesty scheme, said FBR Chairman Nisar Mohammad Khan. He said that scope of the bill was only limited to the valuations.

At present, taxes on property transactions are determined through property values set by DCs at the provincial level while federal taxes are paid on the basis of FBR-notified property rates. Dealers are declaring two types of prices – one for provincial taxes and the other for federal taxes. Such a difference between the actual market rates and the DC rates has led to the parking of over Rs7 trillion in the real estate sector over the years. Rana Mohammad Afazl, the parliamentary secretary for finance, also opposed the move to give the tax amnesty scheme to the realty sector. “If doors are opened for such schemes, only the property business will prosper and no one will be able to construct a home,” said Afzal while expressing concerns that such a move may increase the prices of immovable properties. “Giving an amnesty scheme would mean supporting thieves,” he said after the committee meeting.

PPP MNAs Naveed Qamar and Nafisa Shah also opposed the move to give the amnesty scheme.

However, the PML-N’s Mian Abdul Manan, Pervez Malik, Sheikh Fayazuddin, Sheikh Qaiser and MQM’s Rashid Godil strongly supported the scheme. After initially seeing opposition to the scheme, Mian Abdul Manan disclosed that the subcommittee that worked out the amnesty had been setup on “someone’s behest”.



It is widely believed that Finance Minister Ishaq Dar decided to get parliament’s nod for the amnesty scheme after some influential PML-N legislators approached the prime minister for the concessional package.

The detractors say that the amnesty scheme would further discourage people from coming in the tax net. The 3% rate is too low when compared with 35% standard income tax rate. India has recently given a tax amnesty scheme but it set the rate that was significantly higher than the standard rate aimed at discouraging people to hold untaxed money in future.

In Pakistan, more than seven million people are paying direct taxes, although regular income tax return filers are less than 1.1 million, indicating the FBR’s inefficiency to force people to file their returns.

Published in The Express Tribune, November 23^rd, 2016.