Taxing real estate

The government has had difficulty in going after rich people’s incomes because they are frequently undocumented.

The move by the Rawalpindi city government to begin levying taxes on real estate, including enforcing newer, higher rates, may sound painful for those who have to pay them, but is a necessary one and should be replicated by other governments throughout the country. It is high time that property owners paid their fair share of taxes and it is the job of provincial revenue departments to make that happen.

When the Eighteenth Amendment to the Constitution and the Seventh National Finance Commission Award were negotiated, there was an understanding that while the federal government would supply the provinces with significant revenues, they would each seek to increase their own revenues as well. The conversation around provincial taxes often frequently gets bogged down into talk about agricultural income taxes. However, the real tax that is likely to yield far more revenue is one on residential and commercial real estate.

Pakistan’s financial system is highly underdeveloped and so the country’s rich people do not really park their money in stocks and bonds or even bank accounts. They buy real estate, which accounts for a disproportionately high percentage of their net worth. The government has had considerable difficulty in going after rich people’s incomes because they are frequently undocumented. But taxing their properties should be considerably easier and the provincial governments should do so immediately. To this end, the process of creating computerised land registries in every province should be accelerated. Punjab and Khyber-Pakhtunkhwa have already started. Sindh and Balochistan would do well to follow suit. We would also recommend that the tax be levied not on the amount of land, but its actual value, so as to ensure that wealthier people pay a higher tax rate.

Levying this tax will not be easy and there will be some very strong opposition to it, but that is the point: nobody likes paying taxes. They have to be forced into it, kicking and screaming if necessary.

Published in The Express Tribune, July 12^th, 2013.

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