ISLAMABAD: To bring an end to uncertainty in the real estate market, the Federal Board of Revenue (FBR) has agreed, in principle, with realty stakeholders on a formula to determine the value of property for the purpose of taxation.

The government has estimated a yield of over Rs10 billion from changes made in the value of property and tax rates in the budget for the 2016-17 financial year.

Finance Minister Ishaq Dar is expected to give a final nod to the proposals at a special meeting on Thursday, to be attended by the representatives of builders and dealers.

By accepting the proposals on the table, the FBR will have to withdraw its budgetary decision of 100 per cent fair market valuation of property.

“We have reached an understanding on the issue in today’s meeting with realty stakeholders,” a tax official told Dawn, adding that a final decision on the matter would be taken in Thursday’s meeting.

On the issue of determining fair value of property, the official said the real estate stakeholders agreed on the formula as well as a special rate for past transactions.

As per the formula mutually agreed, 50pc of the difference between the collector/DC rate and market rate will be added to the existing collector rate. After addition to the collector rate, the new rate will be considered as fair value for the next two to four years for taxation purposes.

The tax official said the real estate associations had demanded a phase-wise approach for meeting the 100pc transaction value.

Internationally, tax is charged on transaction value, but in Pakistan the collector value is much lower than the actual transaction value.

In the provinces, the valuation table is notified by the collector of a district under Section 27-A of the Stamp Act, 1899.

In the budget for 2016-17, the taxable period for capital gains on disposal of immovable property was extended up to five years. And a flat 10pc tax has been made applicable on the seller of the immovable property, if he sells it within five years of its purchase. But through an amendment to Section 68 of the Income Tax Ordinance, 2001, the task of determining fair market price of property has been given to professional valuers approved by the SBP.

Another tax official said the real estate associations wanted the FBR to come up with city-wise valuation tables instead of authorising the SBP to evaluate properties through its valuers.

According to the official, the meeting on Thursday would also take a decision on the issue of different percentages for different cities on the basis of the existing collector value. Even within the cities, there are different categories of values for property.

“We can’t come up with a single percentage formula to be applied across the country,” the official said.

In some cities, the collector value is much lower than the actual market rate. This variation exists within inter- and intra-cities across the country.

On the issue of transactions made before July 1, a special rate will be fixed in the range of 3pc to 4pc to declare a property at actual cost on a one-time basis. It has been proposed that tax will be paid on the amount of difference between the declared cost and actual cost.

Special Assistant to the Prime Minister on Revenue Haroon Akhtar Khan told Dawn that the government wanted to settle the issue to put the real estate business back on track. He said the FBR wanted the real estate stakeholders to declare the actual cost of their transactions.

“We have given a patient hearing to all stakeholders and listened to their proposals,” he said, adding that their representatives were given ample time to present their cases. He said all proposals would be discussed with Finance Minister Ishaq Dar for a final decision.

Ashfaq Tola, a Karachi-based chartered accountant and former member of the tax reforms commission, has also submitted a similar proposal to the finance minister for consideration.

The SBP has already announced a 106-member approved panel of property valuers. Nineteen of them have been permitted to determine the fair market price of a property of unlimited amount, 59 for a property worth up to Rs1.5bn and 28 others for a property worth no more than Rs500m.

Published in Dawn, July 21st, 2016