Govt stuck in property tax debate

Finance Minister Muhammad Aurangzeb said on Thursday that the International Monetary Fund's (IMF) review mission might arrive by the end of February, as the government grapples with the issue of allowing property purchases of up to Rs10 million without first explaining the source of income.

In a brief interaction with the media at the Parliament House, the finance minister stated that the IMF review mission would visit either by the end of February or early March, but clarified that the IMF has not yet officially confirmed the dates.

A successful completion of the first review and its subsequent approval by the IMF board will pave the way for the release of the next loan tranche of over $1 billion. However, the review is critical for Islamabad, which has not met some of the agreed conditions, particularly on the agriculture income tax, tax collection from retailers, and meeting the half-yearly Federal Board of Revenue (FBR) tax collection target, among other conditions.

The finance minister said that discussions were still ongoing with Sindh and Balochistan to approve new agriculture income tax laws.

The government has also proposed a new bill to further restrict transactions by ineligible persons—whether filers or non-filers—including a condition requiring buyers to first explain the source of income before purchasing property.

However, the government is facing pressure from coalition partners and the business community to exempt properties worth Rs10 million to Rs25 million from upfront disclosure of the source of purchase.

"The FBR is considering allowing property purchases of up to Rs10 million without first disclosing the source of income, but we have not yet made a final decision," said Dr Najeeb Memon, FBR's Member Policy, during a meeting of the National Assembly Standing Committee's special panel on granting such exemptions.

According to the original proposal awaiting National Assembly approval, no one can buy property worth more than 130% of the liquid assets declared in the previous tax returns. If the value of the property exceeds this threshold, the buyer must first explain the source, states the proposal.

Any relaxation in these regulations could facilitate the flow of black and untaxed money into the economy, potentially leading to concerns from the IMF.

The National Assembly Standing Committee on Finance has set up a sub-committee, chaired by Bilal Azhar Kayani, to recommend an exemption threshold. The sub-committee held its second meeting on Thursday, but discussions remained inconclusive.

"We are trying to plug loopholes, but we also have to consider the standing committees' views," said the finance minister when asked whether the Rs10 million non-disclosure exemption threshold would encourage the black economy.

The Association of Builders and Developers has recommended that the standing committee allow property purchases of up to Rs25 million without disclosing the source, and up to Rs50 million in the case of a first-time home purchase.

"The Rs50 million exemption would amount to a perpetual tax amnesty," said Memon.

The FBR official admitted that the tax machinery does not currently have an efficient and secure technological system allowing buyers to submit additional information about sufficient resources before completing a property transaction.

"Our team is continuously working on developing a smooth system, but it is still under development. We are trying to build a reliable technology solution," Memon said.

The FBR's decision to propose a legal amendment before developing a secure system for filing additional income disclosures raises concerns about potential exploitation of buyers by tax authorities.

Bilal Kayani stated that the sub-committee would recommend that the main committee review the FBR's technological solution before passing the law. He added that the National Assembly Standing Committee on Finance would test-run any proposed system to ensure that citizens are not left vulnerable to the FBR's discretion.

The sub-committee also recommended amending the proposed definition of liquid assets that can be used for property purchases. It suggested including gold, bonds, livestock, and other immovable property in the definition of assets that could be used to explain the source of funds for purchasing new property.

"The FBR cannot force people to sell their other assets first before buying new property," said Kayani.

He also objected to the FBR's proposal to treat a dependent daughter differently from a dependent son, stating that there should be no gender-based discrimination and that all dependent children should be treated equally.