Islamabad: The real estate sector has demanded that the Federal Board of Revenue (FBR) rationalise its valuation of immovable properties in the country as soon as possible to end uncertainty, reports WealthPK.
In a letter to the Chairman Senate Muhammad Sadiq Sanjrani, Vice President Federation of Realtors Pakistan and General Secretary Real Estate Consultants Association (RECA) Muhammad Ahsan Malik has drawn his attention to the recently issued instructions by the Federal Board of Revenue (FBR) about the review of valuation of immovable properties. He said these instructions will have a catastrophic effect on the construction and real estate sector.
Highlighting ‘anomalies’ in the valuation of immovable properties by the FBR, Malik expressed reservations and said currently there were four methods in practice for property valuation in the country which were creating confusion in the real estate sector.
He said the federal government charges Advance Tax/Gain Tax according to the FBR valuation for only 19 districts, while the provincial governments charge stamp duty according to the district collector (DC) rates.
Similarly, cantonment boards charge taxes according to their own valuation. Also, fluctuation in market rates depends upon the prevailing market conditions and government policies.
So, due to four different valuation rates, the general public usually gets confused. The recent example of the FBR valuation imposed on Dec 1, 2021, has impacted drastically the real estate market and construction industry.
Presenting his suggestions about resolving the issue, Muhammad Ahsan Malik said property valuation should only be done by the provincial governments which are already practicing it and are capable of doing it, as they already have field force revenue department.
The provincial governments charge Stamp Duty according to the DC rates. It is suggested that the federal government should also charge gain tax/advance tax according to the DC rates. He said property valuation should only be done once a financial year.
He said in case the FBR was bent upon enhancing rates all over Pakistan, closer to the market value, then the advance tax collected at source under Section 236K and the gain tax collected under Section 236C should be brought down. Otherwise, he said, the FBR can enhance 25% on its valuation table. Special incentives should be announced for registered Designated Non-Financial Business and Profession (DNFBP) realtors.
The initiative will not only minimize confusion in the real estate sector, but also flourish the construction industry package announced by the government. Additional revenue generated will be helpful in the revival of the current national economy.
However, the FBR in its written reply, a copy of which is available with WealthPK, said under the Income Tax Ordinance 2001, they had the power to valuate immovable properties.
Provinces, particularly Punjab, insist on the adoption of their valuation and rates; however, the FBR does valuation as empowered by the Income Tax Ordinance. Additionally, the FBR rates have been adopted by Sindh for its major cities and Khyber Pakhtunkhwa.
The DC rates are inherently much lower than the market rates, while the FBR rates are closer to the market rates. So, the adoption of DC rates would result in a decrease in revenues.
The FBR further highlighted that advance tax rates under Section 236-K were already on a lower side of 1% and are adjustable. Section 37 already provides gradual reduction in gain depending on holding period, while tax rates under Section 236-C are already on the lower side of 1% (2% for non-Active Taxpayer List) and are adjustable. Further, no tax is collectable if the holding period exceeds four years.
Valuation is being done by the FBR field formation after doing market survey and taking stakeholders on board.
INP
