Govt postpones planned increase in property valuation

Public exchequer will take a hit of about Rs850m per month due to delay

ISLAMABAD: In a first sign of political weakness, the government has postponed the planned 30% increase in property valuation rates for federal tax collection purposes, which underlines adverse implications of a politically unstable environment.

The average 25% to 30% increase in the property valuation rates for collection of federal taxes under the second phase had to be implemented from July 1, as announced by Finance Minister Ishaq Dar last year. The decision has been deferred until political normalcy returns, said sources in the Federal Board of Revenue (FBR).

Authorities had estimated collecting an additional Rs10 billion due to up to 30% increase in valuation rates during fiscal year 2017-18 that began on July 1. The exchequer will take a hit of about Rs850 million per month due to delay in implementing the decision. The government missed the opportunity when Finance Minister Ishaq Dar decided to postpone the increase in valuation rates from July 1 in order to avoid any backlash from realty investors after the announcement of the budget, said the sources.



They said Dar had indicated implementing the new rates from July 15. The deadline was again missed due to unfavourable circumstances caused by the joint investigation team (JIT) report in the Panama Papers case, they added.

The Supreme Court disqualified former prime minister Nawaz Sharif on July 28, resulting in political uncertainty.

After holding a series of meetings with the realty sector stakeholders, the federal government had decided to bring the deputy collector-determined property rates on a par with the prevailing market rates for enhancing tax collection in three phases.

The FBR had notified fresh property valuation rates for 21 major cities, which provided a new base for the collection of withholding and capital gains tax (CGT). Withholding tax rates range from 1% to 4% while the CGT rates are in the range of 5% to 10%.

These rates were higher than the prevailing deputy collector rates, but were still only 30% to 40% of the actual market rates.

The FBR had notified rates for major cities including Lahore, Multan, Gujranwala, Faisalabad, Sialkot, Islamabad, Karachi, Hyderabad, Sukkur, Sargodha, Mardan, Abbottabad, Peshawar, Quetta and Gwadar. The increase in rates resulted in over 125% enhancement in revenues in the first phase.

Under the constitution, the immovable property is a provincial subject, but the federal government has the right to collect income tax. It collects income tax through withholding taxes and capital gains tax.

At a time when the ruling party has decided to seek the support of masses against the Sharif’s disqualification decision, it will be a politically unwise move to further increase the property valuation rates, said the sources.

The federal government of Prime Minister Shahid Khaqan Abbasi would try to avoid any politically unpopular decision, they added.

“Work is under process and we will notify the new rates by the end of this month,” claimed Dr Mohammad Iqbal, the FBR spokesman while talking to The Express Tribune on Monday.

He said field formations had sent property valuations, but the FBR headquarters had not yet evaluated the valuations.



FBR’s former chairman Dr Mohammad Irshad had told The Express Tribune in early June that the exercise to further enhance the rates had been completed and new rates would be notified from July 1. He said the rates would go up by another 30% on average, but these would still be lower than the actual prevailing market rates.

In addition to the existing 21 cities, the federal government had a plan to bring Okara, Larkana, Khairpur and Shaheed Benazirabad under the ambit of the new property valuation regime.

Published in The Express Tribune, August 8^th, 2017.

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