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Property Valuation - Government Overestimates the Revenue Collection

29/07/2016

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The PML(N) government recently took a courageous step for the price correction in Pakistan real estate sector but after conducting a meeting with the industry experts, the government agreed to offer tax amnesty scheme, which is thought to whitenRs7 trillion untaxed, black money currently stashed in the real estate sector.

It was also decided in one of the meetings that both FBR officials and real estate experts would bring their own property valuation rates of 18 cities. And on the basis of both rates, government valuers will come up with "consensus rates" and on its basis, the government will decide for amnesty on past transactions and calculate tax amount on future transactions.

And it is learnt now that the gap between prevailing market prices and official property rates is not as wide as it was initially perceived by government authorities but just in Lahore not in Karachi and Islamabad. The market value, assessed by government-hired valuers, is at least 3 to 15 times higher than the district commissioner determined (DC) rates. The difference is more prominent in the two cities than elsewhere and emphasizes the extent to which the real estate sector has escaped taxation.

These rates had been set for finalizing the stamp duties on property transactions, which will become base for determining income gains and hiding the real values of properties. Tax authorities were initially of the view that the property values declared by the property dealers and investors are 50 to 100 times lower than the prevailing market rates. However, it is found that it is not true.

The representatives of real estate sector also shared their fair market price valuation of 21 major cities of the country. And as expected, their values were far lower than the values worked out by the government-hired valuers. And according to real estate representatives, market values are 2 to 5 times higher than the DC rates. The significant difference between both parties’ prices means that it will become difficult to determine the fair market value. Director HomesPakistan, Asad Mirza is of view that gradually things will become better for Pakistan real estate sector, especially Lahore – despite the fact that it will take time.

The new determinations will become the base for giving tax amnesty scheme on previous transactions, estimated at Rs7 trillion. However, it is learnt that in case of Karachi, the values of the properties were 5 to 13 times higher than the DC rates. And in case of Islamabad, the difference between DC rate and fair market value is in the range of 8 to 15 times. And as per government representative, the difference is not much in case of Lahore due to increase in DC rates from time to time.