FBR Notifies Property Valuation Rates for 16 Major Cities

The Federal Board of Revenue (FBR) has notified new property valuation rates known as fair market value for 16 major cities of the country – providing a fair base for the collection of withholding tax and capital gain tax. The notified rates are determined under section 68 of the Income Tax (Amended) Ordinance, 2016 that comes into effect from July 1, 2016 for Lahore, Gujranwala, Sialkot, Multan, Faisalabad, Islamabad, Karachi, Sukkur, Mardan, Sargodha, Hyderabad, Abbottabad, Peshawar, Quetta and Gawadar.

The authorities have picked all the major cities and come up with new but slightly compromised rates after having detailed discussion with the representatives of the real estate sector. And out of 21, property valuation rates have been determined for 16 cities and rates for the remaining 5 cities are expected to be notified in the upcoming week. The rates are said to be higher than Deputy Collector (DC) rates but far lower than the prevailing market rates.

The FBR has directed all its chief commissioners to carefully monitor the matter as it involves substantial revenue implications. Under the ordinance, withholding tax on the sale and purchase of immovable property, will be collected by the FBR officials according to the notified rates. President Mamnoon Hussain has already passed the Ordinance to give effect to the deal, which also includes tax amnesty on previous property transactions. Moreover, the government will not inquire about the source of income from those who invested in the real estate sector before June 30, 2016.

After the imposition of new taxes, property transfer rates have increased property transfer rates by at least 100 to 200 percent. Since then, property sale and purchase business has been plunged as there is huge difference between the actual property rates and DC rates. And as per real estate agent, now buyers will have to pay around Rs300,000 for registering a five marla plot in a lower middle class locality in Lahore as compared to earlier rates of Rs150,000 under DC rates.

It means that buyer has to pay around 6 percent in taxes including 1 percent corporation tax, 2 percent CVT, 3 percent stamp duty and registration fee of Rs1200 for the transfer of a property worth Rs3 million. For the property worth more than Rs3 million, additional 2 percent withholding tax was payable, which has now been increased to 4 percent. Moreover, 1 percent capital gain tax has also been imposed on the sellers in the recent budget of 2016-17.

Director HomesPakistan, Asad Mirza is of view that though the imposition of fair market value has not created a huge difference in property prices but it certainly created a panic situation in realty market for the time. He suggested that government must have educated the realtors and took them in confidence before imposing new taxes. Gradual implementation seems to be a better option.

Currently, the market is slow or let' s say stalled at the moment but it will not stay the same. There are chances of improvement in the coming 6 to 8 months, he says further. Currently, if there are not several buyers in the market, there are also not many sellers as well. It shows that they have strong holding power.

After seeing this, one thing is for sure that the new taxation reforms will end the speculative sale and purchase of property, leading to artificial hike in the sector. What is your point of view? Do not forget to share with us through comments section.