ISLAMABAD: The government on Tuesday further increased property valuation rates by an average of over 30% for 20 major cities of the country, bringing them to 85% of the market prices aimed at collecting additional Rs40 billion from people in new fiscal year.
For certain areas of Karachi, the rates have been increased up to 75%, mainly for residential apartments.
It is for the second time in six months that the Pakistan Tehreek-e-Insaf (PTI) government increased the property valuation rates. In February this year, the government had also increased the average rate by 20% to 55% of the market value. With the fresh increase, the total average increase in valuation rates has come to 50% in six months, which would significantly increase the tax collection.
The valuation rates, which would take effect from today (Wednesday), have been increased for the purpose of federal tax collection on sale and purchase of land and apartments. The Federal Board of Revenue (FBR) on Tuesday notified the new rates for 20 cities but pended notification for six cities.
“After the fresh increase, the property valuation rates are now around 85% of the fair market value,” said the FBR Member Inland Revenue Policy Dr Hamid Ateeq Sarwar.
The move is expected to generate an additional Rs40 billion in tax revenues in this fiscal year, but it will disappoint real estate agents and traders. The real estate sector remains sluggish due to government’s taxation policies, overall slowdown of the economy and drive to encourage banking transactions.
“The FBR will also align the value of immovable properties with market rates and specify conditions under which the long-term lease hold will be considered as the purchase of property,” reads the latest report of the International Monetary Fund (IMF).
The report says the government’s decision to increase the holding period liable to tax for capital gain tax on immovable properties and securities and aligning value of immovable properties with the market rates would generate additional taxes equal to 0.1% of the Gross Domestic Product or Rs44 billion.
The same report says the PTI government has imposed new taxes worth Rs733.4 billion, the heaviest taxation by any government in a single year.
In the budget, the government has also increased the holding period liable to tax for capital gain from three years to four years for build-up area and to eight years for open plots. The properties sold before expiry of these limits would be subject to Capital Gains Tax.
The FBR’s valuation rates are aimed at collecting federal taxes on sale and purchase of properties. There are three types of rates – deputy collector rates of provinces that are the lowest, the FBR-determined rates and actual market rates.
In past three years, the FBR has brought its valuation rates to 85% of the market rates, which would also help plugging a loophole used to white the black money. The difference in these rates is creating black money in the market, which can only be plugged by bringing the rates closer to market values.
Before this budget, the FBR used to collect the withholding tax in the range of 1% to 4% while capital gains tax (CGT) rates are in the range of 5% to 10%. Now the FBR has reduced the withholding tax rates to 1% from up to 4% aimed at encouraging the people to declare their properties at actual rates.
In August 2016, the FBR notified fresh property valuation rates for 21 major cities, which provided a new base for the collection of withholding and CGT.
On Tuesday, the FBR notified rates for 20 major cities – Lahore, Multan, Gujranwala, Faisalabad, Jhang, Gujrat, Bahawalpur, Islamabad, Karachi, Hyderabad, Sukkur, Mardan, Abbottabad, Peshawar, Rawalpindi, Sahiwal, Sargodah, Quetta, Gwadar and Jhelum.
Jhelum has been added for the first time in the list. The FBR did not notify fresh rates for Sialkot.
Most of the black money is parked in the real estate sector and authorities have been trying for a long time to tap this area. However, due to various lacunas, the tax collection has always remained negligible compared with the transactions and returns on them.
The Financial Action Task Force (FATF) has also identified the real estate sector as a potential source of creating black money, which can be used for terror financing activities.