Tax on a man’s castle

Published: August 25, 2013
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The writer is a practising barrister and managing partner of Qayyum and Associates in Lahore. He is a graduate of Columbia and Oxford universities

The writer is a practising barrister and managing partner of Qayyum and Associates in Lahore. He is a graduate of Columbia and Oxford universities

The Punjab government has only recently through the Finance Act levied a one-time ‘luxury’ tax on houses measuring two kanals or more in certain areas of Punjab. At present, the same is being imposed only in certain arbitrarily chosen areas of Lahore. Homeowners in New Garden Town and Model Town have received notices demanding 0.5 or one million rupees or more, on houses varying from two kanals to less than four kanals, four to less than eight kanals, and eight kanals and more, respectively. As the dates for payment near, petitions have been filed before the Lahore High Court against the levy. Legal arguments on the touchstones of discrimination, double-taxation and the violation of fundamental rights shall, of course, be argued threadbare, before the courts and since the matter is sub judice, one ought not get into the same. However, one can, of course, talk about the policy and economic aspects of the levy, things that are more properly talked about here, than in court.

At the outset, quite how a house, which is a home, can be deemed a luxury, is debatable. A person’s fundamental right to life includes the right to a home. Having a home is an essential right, a good, like education. No matter how much one spends on one’s home or, for that matter, education, surely it is none of anyone’s business to tax it. This is especially so, as homeowners are paying property tax on their homes already.

One understands and would agree that if one owns more than one house, then it can be argued that the second house is a luxury and that should be taxed.

It seems that the provincial government is itself somewhat embarrassed by the levy: it describes this levy as only ‘one-time’, as if this in any manner justifies it. Perhaps it thinks the taxpayer will not complain. The issue still remains — either the tax is sustainable in policy or it is not, be it perpetual or one-time.

Like most populist steps, this step is hollow at its heart. Mr Shahbaz Sharif is often prone to roaring against the rich. But the rub lies in the fact that he does not tax them proportionately. While this tax is in name a tax on ‘luxury’, this is not a significant tax on the rich. The maximum ceiling for the tax is Rs1.5 million. A house on eight kanals will be charged the same amount as a tycoon living in a 230 kanals palace. Rs1.5 million is a pittance for a multibillionaire but for a lower middle class family living in a four kanal inherited house, paying one million rupees is huge chunk of their income and well-nigh impossible to pay.

Speaking of billionaires having to pay tax on their palaces, all of this is only if the place or the palace is taxed at all. Therein lies another huge loophole and weakness of this levy. What areas get levied with this tax is left up to the unguided whims of the executive, which can arbitrarily decide as to which areas fall within the taxed category and which do not. The absurdity of this aspect of the levy is highlighted when one notes that some of the posh areas of Lahore do not have to pay this so-called luxury tax at all.

While being difficult for the taxpayer, the excise department seems to be proceeding with this hugely unpopular levy in a very considered and intelligent manner. It is keeping the speed of issuance of the notices slow. Had all of Lahore received the notices on the same day, the city would have been in an uproar. This way, it slowly chokes out the taxpayer.

Ultimately, it is clear that the incidence of this tax would really be most greatly felt by the middle class homeowner, a class already devastated by rising inflation and various taxes. It would, thus, be better if the government withdrew the same and perhaps, actually taxed the rich on their luxuries, rather than simply dressing up a tax on the middle class, with empty rhetoric and faulty implementation, while leaving loopholes for the rich to exploit

Published in The Express Tribune, August 26th, 2013.

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Reader Comments (19)

  • Tulla
    Aug 26, 2013 - 12:08AM

    Right to life includes a right to home? Having a home is an essential right? So are there non-essential rights also? How much one spends on a home is one’s own choice and it should not be taxed? Really. The construction of the argument in the article is not coherent or logical.
    A little research for the article may have led to finding that ‘the right to adequate housing’ is given in Article 11 of the International Covenant on Economic, Social and Cultural Rights of 1966. There is a UN Fact Sheet on ‘The Right to Adequate Housing’ (FS2/Rev 1) issued by the office of UN High Commissioner on Human Rights. Also there is a UN Special Rapporteur on adequate housing as a component of the right to an adequate standard of living and the Rapporteur works for the UN Human Rights Council.
    The right to adequate housing is not the same as the right to private property. Also there is no human right to ‘a home’.

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  • Nadir
    Aug 26, 2013 - 12:22AM

    Under what definition of “middle class” are homeowners with 2 to 4 kanals of property in Model Town, “Middle Class”? The problem is that everyone things that they are paupers, while the bigger fish should be the ones who pay up. How many taxes and expemptions do these very same people enjoy? In a country where 34 million children are malnutritioned, 14 million are out of school, 2-4 kanal homeowners arnt the toiling masses.

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  • Aazar Hameed
    Aug 26, 2013 - 12:32AM

    Frankly, I don’t also understand the logic. An uncle who is in his 90s bought a house on 4 kanals sometime in the 1960s. He is near broke and although he lives in that house, he can’t sell as its title and ownership is being contested by his children and family. point being that what you see is not necessarily the true picture. Our system of taxation is absurd and becoming more so everyday with short term thinking of each regime that comes to power.

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  • Sane
    Aug 26, 2013 - 2:21AM

    I totally agree with the idea of taxing the rich, but your arguements seem paradoxical and bereft of the ground realitites. Which middle class in Pakistan lives in a 4 canal house?? When you talk about loopholes, being a barrister you may be aware of the tax evading tricks our elite resorts to: “One understands and would agree that if one owns more than one house, then it can be argued that the second house is a luxury and that should be taxed.” Nobody registers the second house in their own name, it’s always their wife, kids, mama chachas etc. Please make sense next time.

    Note: ET allow my comments. I have a right to comment as long as it’s not offensive or abusive. Some of your moderators surely need more training.

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  • Strategic Asset
    Aug 26, 2013 - 9:00AM

    I agree with the author. Square footage (or kanals as is used in Pakistan) is no indicator of the wealth of the inhabitants. Even in India’s major cities there are people who live in self-inhabited large parcels of property who have fallen on hard times or received their title by inheritance. They can barely manage to pay the property tax on the properties, however many municipalities in India do not evict people from their abodes for non-payment of property-tax. Instead these municipalities ensure that the property tax, interest and penalty is paid whenever there is a sale or title change.
    .
    The one-time luxury tax as implemented by the Punjab government is an usurious and unjust tax and may see that many of the above may lose their properties as a consequence of it. If the Punjab government is strapped for money for its numerous transportation schemes such as metrobus and bullet train, surely it can look outside the country for guidance on collection of revenue.

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  • MAQ
    Aug 26, 2013 - 10:39AM

    Nadir: No one is saying that the Middle Class should not pay. All I am pointing out is that the impact of this tax is most felt by the Middle Class (homeowner) and not the Upper Class (the rich) and that is not the stated intent of the tax.

    I do however hold that homes should be minimally imposed. I do not for example object to luxury tax on cars as was previously imposed.

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  • MAQ
    Aug 26, 2013 - 10:45AM

    Strategic Asset: Could not agree more.

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  • Proletaian
    Aug 26, 2013 - 10:46AM

    If most of your wealth IS your house then you are middle class or poor.

    This is a fact highlighted in the infamous citigroup ‘plutonomy’ reports. If not, then you’re rich and deserve to be taxed more because you have a undeservedly high income far beyond fair compensation for any work you actually do, an undeserved wealth which is a result of the of the destructive capitalist / feudal system, which awards the lions share of the world’s resources to the idle aristocracy and only leaves scraps for the workers. But through strategic, progressive taxation you can move towards a more democratic, egalitarian society and begin to compensate for the flaws of the capitalist system.

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  • Rumormonger
    Aug 26, 2013 - 10:46AM

    This is not taxing the rich. This is again axing the middle class. An established professional in the 1970s could save up a little money and buy a piece of land and make a decent house on 2 kanals. It is not his fault that the property values skyrocketed and his income went down and he is living on his pension.

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  • Zubair
    Aug 26, 2013 - 1:10PM

    The real issue is that only Model Town ,Garden Town and Gulberg area are being targeted by this ‘luxury tax’. What about Cantonment and Defence? Not to mention all the big housing schemes from Beidian to Bahria Town?
    By no means do tax but don’t discriminate from one area to another.

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  • srazzaq
    Aug 26, 2013 - 2:23PM

    This is an absurd argument that the guys living in these houses are all RICH. I live in a 2+ Kanal house built by my grand father in 1982. Currently I am a salaried person and cannot afford this tax. Moreover, if ALL of Lahore was included in the tax, I would have thought about it. It seems like NA 126 is being specifically targeted i.e. Garden Town , Gulberg and Model Town because the people here rejected N leagues Mandate in 2008 elections and both the National Assembly Seat and Punjab Assembly seat went to PTI>
    Moreover the Chief of High Court is a close relative of PML N Higher ups so now its really convenient to implement the LAW of the jungle.

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  • Osman
    Aug 26, 2013 - 4:26PM

    Just wanted to clarify a few things here which the author maybe forgot to mention. This tax is being imposed only in category A areas, which are basically areas where property values are very high e.g. model town, garden town etc. The tax is not being imposed in Defense and Cantt because these areas do not come under the jurisdiction of the Excise and Taxation department(they come under the army), although they are trying to tax those localities as well.The category of all localities was approved many years back by the Punjab assembly and the Tax department does not have authority to change the category with getting approval first.
    My point is that the government has a set rule which they are following when it comes to choosing which properties will get taxed and this is not because PML-N lost NA126 as someone mentioned in a previous comment. One can argue that the concept of this tax is wrong(which I agree with, since these guys are already paying a higher rate of property tax) but no one can say that a person who has an asset worth above Rs 60,000,000(which is approximately the cost of a 2 kanal house in a catagory A area) belongs to our country’s middle class.

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  • Humza
    Aug 26, 2013 - 5:18PM

    @srazzaq: Perhaps you don’t know that people all over the world pay yearly property tax the moment they buy a property including a house, usually 1 % the value of the property each year. The right to shelter is fundamental but in no Western country do they ignore property tax. That is why it is so laughable that Pakistanis complain about taxation on homes as though something illegal is going on! Also if people in North America can’t afford a home’s property tax and expenses, even an inherited family home, they are obliged to sell it; the government does not make exceptions. Elderly people on low salaries who are forced to sell their homes and get smaller more affordable places are simply ” downsizing “. I just wish the Punjab government could explain to people how property tax is applied in other countries so that people could wake up and see how abnormal it is NOT to pay home and property tax. That’s how municipalities pay for services.

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  • yusuf
    Aug 26, 2013 - 7:30PM

    @Humza:
    We live in an apartment. We have a four kanal house inherited from my grandfather and through my dad (the only child) which we have rented out for our source of income as we siblings completed out educations and my one of my two sisters got married. My father is deceased, I now work and earn but am also studying and the house is our major source of income and our sole asset. I have a married sister, an unmarried sister and a younger brother who is studying. We can not afford to pay this luxury tax because the house finances our necessities. I am working at a firm on a pittance of 35k while doing my MBA simultaneously. The government does not provide us adequate (for the job market or otherwise) public education where my mother could have sent us instead of paying private school fees, nor health to treat the multiple sicknesses, injuries, illnesses, we have paid for. No adequate security or fair chance to obtain jobs or even a good economy so that a hard working boy on scholarships can merit a good income when he gets a good job. In the countries you speak of, please ask what is the starting salary and the cost of necessities and compare with ours.
    Please keep these erroneous and misguided comparisons to yourself.

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  • RMS
    Aug 26, 2013 - 7:51PM

    I agree with the author. I see two major flaws with this tax:

    It does not discriminate between the owner of a 4-kanal bungalow in Model Town who has inherited the same from his father and someone who has built a 100 kanal palace in Bahria Town in 2013. Both would have to pay the same tax. That’s unfair.

    A person living in a 4-kanal bungalow is not necessarily rich. He may have inherited the property from his father and may be living on a Rs. 25,000 a month salary. Where will he get the money to pay Rs. 10 lacs in tax? And why should he be forced to sell this ancestral home?

    Progressive taxation should be on earned wealth, not inherited wealth. I propose a luxury tax on PURCHASING of 4+ kanals of land, not on INHERITANCE.

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  • Mirza
    Aug 26, 2013 - 11:08PM

    First of all no “lower middleclass” person can maintain let alone own/build a home bigger than half an acre or more than 2,000 meters. By this standard what would the definition of a middleclass and upper middleclass not rich or filthy rich?
    As far as primary homes should not be taxed at this rate here is an example. Many high income Pakistani Muslims buy bigger homes and expensive cars than they need or even can afford. This way they do not have to pay any Zakat on their home (exempt) and conveyance. Also they do not pay Zakat on their businesses. On the other hand a retired peon, clerk, or teacher living in a small rental property while saving his retirement funds for his daughter’s marriage would have to pay Zakat every year on that savings! In other words this poor man who owns nothing of value would pay Zakat on his lifetime savings while a rich man with huge home, expensive cars and business would be required to pay none! Now it appears that like Zakat they do not want to pay any local taxes either on their huge estate.

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  • Mirza
    Aug 26, 2013 - 11:20PM

    Most retired or lower middleclass people move to a smaller home more likey in a condo if they don’t have enough income/money to maintain it. Which poor person can afford to pay for gas, electric, water, maintenance and other bills for such a huge property? If one does not have enough money don’t be glued to the whole property, rent a portion of it.
    My rich uncle has offered me his old BMW but I did not accept it even for free. I cannot afford to have an expensive used car and properly maintain it.

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  • Ricky
    Aug 26, 2013 - 11:28PM

    “a lower middle class family living in a four kanal inherited house, paying one million rupees is huge chunk of their income and well-nigh impossible to pay.”
    It is amazing that a person getting a home worth many crores free and clear would not pay even a fraction of that money and be called lower middleclass!

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  • Humza
    Aug 27, 2013 - 8:53AM

    @yusuf: So you have a four kanal home which you have rented out for income and that should exempt you from paying tax? It seems that you think that your financial choices are justification for not paying tax. There will always be those who will want to justify skirting the rules and not wanting to pay tax. At some point, people need to understand that they have a social responsibility as citizens. That four kanal house is fair game for taxes and until people understand that everyone has to pay tax regardless of their circumstances, no nation can expect to improve.

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