PESHAWAR, Aug 17: The collection of stamp duty on property mortgaged for seeking loans for the construction of houses has marginalized the scope of people belonging to low and middle income groups, according to official sources.
Individuals seeking house-building loans have to pay a substantial amount of money to the provincial government under the head of stamp duty that is paid at the time of mortgaging property against which the credit is sought.
In the case of the NWFP, stamp duty is charged at the rate of four per cent against the property mortgaged in connection with credit facility extended by the House Building Finance Corporation (HBFC).
The ratio of the provincial duty is calculated against the total sum of the loan an individual seeks from the lending agency. In this way, a loan seeker is required to pay Rs20,000 on account of stamp duty against the property mortgaged for seeking a loan of Rs 500,000.
Besides, one has to pay a court fee at the rate of 0.05 per cent at the time of entering into a mortgage deal. "All these duties result in an inflated cost of the house loan making it less lucrative, particularly for the people belonging to lower income groups," said an official of a lending institution.
Musa Khan, who works in a private corporate entity, said that he would have to pay about Rs25,000 on account of the stamp duty and a court fee in an attempt to get a loan of Rs500,000 from the HBFC.
"The tax is not justified as it is an additional burden on the poor people," said Mr Khan. Sources in the HBFC, when contacted, told Dawn that the duty was not only keeping people belonging to lower and middle income groups away from the credit facility because it not only leads to increasing the cost of the credit but also negatively affects HBFC's business.
"On several occasions, the people who could not afford to pay the stamp duty and the court fee do not turn up to avail the loan facility," said a Peshawar-based official of the HBFC on condition of anonymity.
A well-placed officer of the provincial government said that the issue of charging stamp duty from those seeking small loans had been under discussion at different forums but no action could be taken in this regard so far.
"It is a controversial issue and some of the provinces (other than the NWFP) have given certain concessions to the people seeking small loans for constructing houses," said the officer.
According to information gathered from the HBFC, while the governments of the NWFP, Balochistan and Punjab charge four-to-five per cent stamp duty the ratio was quite low in Sindh where, said the HBFC sources, one per cent was charged as the stamp duty.
Business circles believe that the levy was also impeding the federal government's policy of promoting housing sector that is meant to boost economic activities. "Finance Minister Shaukat Aziz recently announced concessions for people seeking loans for becoming owners of their own houses but the provincial levy is hampering this policy," said a banker.
The NWFP government has fixed an annual receipt target of Rs240 million under the head of stamp duty for the 2004-05 financial year, up from Rs220 million revised target for the last financial year.
A considerable amount of the total sum raised under the stamp duty head comes from mortgage deals made in connection with loan agreements. "If the ratio of the provincial levy is brought down the number of people applying for the HBFC loans would grow, enabling the poor to have their own houses and it would also help the construction sector," said the banker.
