Valuation rates
IT is difficult to welcome the drastic reduction in the property valuation rates the Federal Board of Revenue had notified back in December under the pressure of powerful land developers and realtors. There is no denying the fact that the revised valuation rates in some areas were on the higher side and needed to be rationalised but the way the FBR folded in the face of the pressure last week testifies to the growing political clout of the wealthy real estate market players. The new, decreased valuations will again widen the gaps between the actual market prices of real estate and the rates at which the FBR collects withholding tax and capital gains tax on property transactions. It goes without saying that the rollback is going to significantly and adversely affect the effort to plug the flow of illicit money into real estate, document the large property market and construction industry, and improve the FBR’s revenue collection.
Defending the reduction in the new valuation rates, FBR officials say that the board will not gradually raise the rates to narrow the gap between the market prices of property and the rates at which it taxes real estate transactions. That is not a practical solution. The way in which property prices keep moving upwards in the cities, especially in Lahore, Karachi and Islamabad, means that the FBR will never be able to catch up with the market through a ‘gradual’ increase in the valuation rates. The land prices have spiked substantially in the last couple of years since the announcement by the government of a liberal tax amnesty for pushing investments in the housing and construction industry to drive growth, drastically widening the gap between market prices and the FBR valuation rates. If this gap is to be bridged, the board will have to take a bold decision and implement its previous valuations — of course with downward revisions in those areas where the rates were enhanced exorbitantly.
Published in Dawn, March 8th, 2022