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Agents to Strike against FBR for Raise in Property Tax

28/10/2016

 

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As you may be aware of Federal Board of Revenue' s decision to increase the deputy collector rates and furthermore, it is also true that the authority seems not to dissipate its decision. Resultantly, the real estate agents blame the FBR for downturn in Pakistan real estate sector as transactions have been decreased by a staggering 80 percent. It is also learnt that decrease in transactions have led to an average fall of 15 percent in prices of residential plots besides 30 percent correction in commercial property prices.

Most of the experts are of view that it is not the right way to introduce tax reforms and bring valuation reforms in a country. The government must take all the stakeholders on board and introduce reforms gradually, in order to avoid any backlash. The plan has already backfired because the government that used to earn a hundred billion rupees in revenue prior to this new development earns hardly ten billion rupees.

It is also learnt from an anonymous source that revenue from real estate sector has been significantly reduced after the new valuation by FBR. However, the authority is hopeful that market will revive and recover itself and during this phase, the authority has allowed valuers to bring the FBR property value at par with the market value in three years’ time. However, market experts differ from FBR' s expectations and they have also refused to accept the new valuations.

At the moment, properties carry three different values, which include market value, FBR notified property value and provincial DC rate value. The market value of the property is the highest, while FBR' s value is less than the market value but higher than the DC rate value. Against this raise, real estate agents have decided to strike against Federal Board of Revenue (FBR) for 100 percent raise in property tax along with new valuation and have also decided to hold sit-up in protest outside the FBR offices across the country.

The government announced in the fiscal budget for 2016-17 that properties in Pakistan were majorly undervalued and sought to revise the valuation in 21 big cities of Pakistan, majority of which are in Punjab. The DC rates are as low as being one-fifth of the market value.

Previously, officials from FBR were assigned to carry out the task in consultation with the real estate agents and other stakeholders after the State Bank of Pakistan withdrew from the responsibility of assigning new property values. However, provincial tax authorities did not change their DC rates. Six different taxes are currently imposed on properties in Defence Housing Authority (DHA): Advance Tax, to be borne before the transfer of a property is made; Capital Value Tax (CVT), levied on the property after completion of transfer; Stamp papers’ duty; Cantonment Tax; Capital Gains Tax (CGT); and Punjab Revenue Authority' s Tax.

Of these, Advance Tax and Capital Gains Tax are collected by the federal government and therefore levied upon the FBR' s property values whereas the rest are collected by the provincial government and therefore levied on the DC rate value.