ISLAMABAD: The Federal Board of Revenue (FBR) has been gradually bringing its property valuation rates closer to market value ever since it was authorised to notify valuations in the main urban centres of the country in 2016.

The tax authority has since raised its valuations two times, i.e. in 2018 and 2019.

However, when the third and the latest upward revision was made in December 2021, the real estate market raised a hue and cry, lamenting the “extraordinary increase” in property rates — especially in Islamabad and Lahore, where valuations were raised by up to 600 per cent.

The FBR attracted severe criticism from realtors and other stakeholders for this “illogical and unreasonable” upward revision, which forced the government to suspend the implementation of new rates until an understanding was reached.

Earlier this week, the FBR finally rationalised the valuations to bring an end to uncertainty in the real estate market.

FBR officials believe that even after downward revision in valuation for some cities, such as Lahore and Islamabad, the new rates are still on higher sides when compared with 2019, when the valuations were last revised.

“We are expecting more than Rs20 billion additional revenue from transactions of properties in the last four months of the current fiscal year,” a tax official told Dawn.

With the increase in valuation, the FBR expects the annual revenue collection from real estate to grow in the range of 20pc to 25pc.

In fiscal year 2020-21, the FBR collected Rs64bn tax from property transactions in the country. In 2016-17, when former finance minister Ishaq Dar introduced the concept of FBR valuation tables, the estimation of tax collection was Rs10bn.

The tax official said FBR’s valuation rates were higher than in provinces but still below the market value. And this may make a case for the FBR to increase the valuation rates from July each fiscal year to gradually bring them on a par with the market value.

Documenting real estate transactions is also a requirement of the global money laundering watchdog the Financial Action Task Force (FATF), which has placed Pakistan on its “grey list” of countries with inadequate controls over terrorism financing since 2018. The FBR has already started working on it and issued guidelines to the stakeholders.

Besides, under a $400 million loan of the World Bank, the government of Pakistan is required to increase property valuation rates to make them closer to the market value.

Arif Jeeva, a former chairman of the Association of Builders and Developers of Pakistan (Abad), told Dawn from Karachi that almost 70pc to 80pc corrections were made property valuation rates notified in December.

He said FBR Chairman Ashfaq Ahmed had agreed further discrepancies would be removed in consultation with the relevant income tax chief commissioners.

He said the valuation rates were increased in the range of 20pc to 200pc in 40 major cities of the country.

When Mr Dar introduced FBR’s valuation tables in the budget of 2016-17, the idea was initially opposed by the stakeholders. However, the government and real estate stakeholders later reached an agreement and the valuation rates were notified on July 31, 2016, initially for only for 12 cities. The coverage was increased to 20 cities in 2019 and then to 40 in December 2021.

So, in 20 cities the FBR’s rates were introduced for the first time, which will be much higher than the district collector (DC) rates but of course lower than the market value.

The new property tables are used for calculating federal taxes, such as capital gains tax and withholding tax. In Pakistan, there are three property valuations rates — FBR rates, DC rates and actual rates.

Internationally, tax is charged on the transaction value, but in Pakistan the collector value is much lower than the actual transaction value. In the provinces, the valuation table is notified by the collector of a district under Section 27-A of the Stamp Act of 1899.

Mr Arif said DC rates were still quite lower than FBR rates except in Punjab, where they were almost close to FBR’s value and even higher in some cities. The FBR rate was still 10pc to 20pc lower than the market value.

The first increase in the valuations was made in 2018, followed by another increase in 2019. The increase made on March 2 is the third one, which came almost after two and a half years. Reasons for the delay could be the Covid-19 pandemic and a government amnesty scheme for the property sector.

The latest increase in property valuations were actually notified in Dec 1, 2021, when the FBR issued fresh and updated valuation tables for around 40 major cities. However, it then deferred the implementation until Jan 15, then Jan 31 and then Feb 28.

The rates were revised as per areas in 39 cities, whereas in Karachi the increase was made according to various categories.

According to Mr Arif, the valuation in some areas in Islamabad was increased by up to 200pc. In Karachi’s category 9, a 22pc increase was made in DHA City while in Bahria Town Karachi the increase was 20pc. In contrast, a maximum 136pc increase was witnessed in category 5, including the areas of Korangi, Golimar, Quaidabad, Shah Faisal Colony, etc.

As a result of protests from realty stakeholders, the FBR chairman directed 18 chief commissioners of income tax to revisit the rates in consultations with all stakeholders.

Mr Jeeva said the upward revision notified in December saw up to 600pc increase in valuations for Islamabad and Lahore. However, the upward revisions in Karachi, Hyderabad and Sukkur were mostly reasonable, with 10pc variations in some areas.

Islamabad-based realtor Chaudhry Abdul Rauf also criticised the government’s “illogical and unreasonable” increase in rates notified in December.

However, he believed that latest revisions made in Islamabad’s valuations were fair. “The increase in the federal capital is reasonable,” he told Dawn, adding that any discrepancy could be sorted out with the chief commissioner of the regional tax office in Islamabad.

According to a tax official, the new rates had been calculated by the valuation review committees with stakeholders, including real estate agents, housing societies and town developers. The committees conducted market surveys, revisit DC rates and consult stakeholders.

Published in Dawn, March 6th, 2022