THE government will try and spin the decision as a victory for the taxman and a step towards the further documentation of the economy.
But it is nothing short of a climbdown and a backtracking on a flagship budgetary promise of Finance Minister Ishaq Dar.
Next week, government negotiators and real estate representatives will meet once again and compare the valuations of the property market in 18 cities across the country that are now to be drawn up separately by the FBR and the private sector.
The original scheme, announced with much fanfare by Mr Dar in his budget speech, had aimed to drive a stake through the property scam in the country: a capital gains tax was to be levied at 10pc for properties sold within five years of purchase and, crucially, the value of the property was to be determined by a panel of State Bank-approved valuers.
If implemented, that scheme would have had a triple effect: raising billions in revenue for the state; deepening the economy’s documentation; and driving speculators out of the property market, thereby possibly reducing the cost of home ownership for millions.
The sheer ambition of the original scheme was itself a red flag. A weak state led by a government with a poor record on reforms was always going to struggle to implement the plan unveiled in the budget.
Yet, what is perhaps most dispiriting about the ongoing negotiations with the real estate sector is how the government is leaning towards giving fresh legal cover to the patently illegal.
Drawing up separate valuations for 18 cities means that the government will now negotiate with the private sector to fix land prices that both sides know to be false — the real estate sector’s fundamental aim being to avoid declaring the true market value of properties in official documentation.
Indeed, following the climbdown on bringing traders into the withholding tax net, the government is sending a signal to the market that its edicts are, in fact, only the start of a negotiating process with the private sector and that the latter will eventually emerge victorious if it remains organised and unified in its opposition to the government’s agenda.
Perhaps the real flaw in the government’s approach is that it appears to see everything through the prism of short-term revenue generation.
Certainly, the net gain from this clash with the sector may be a few extra billion rupees for the exchequer. But those gains pale in comparison to the net social losses of a property sector that is skewed immorally towards the richest in society and that has become a haven for the unscrupulous.
By pretending to take on powerful vested interests with an ill-conceived plan the government may unwittingly be allowing those interests to further entrench themselves.
Published in Dawn, July 23rd, 2016