ISLAMABAD: The National Assembly’s Standing Committee on Finance on Tuesday accepted the recommendations of a sub-committee to launch a tax amnesty scheme for the realty sector, despite opposition from the tax authorities and ruling party lawmakers.
Committee chairman Qaiser Ahmed Sheikh, who also belongs to the Pakistan Muslim League-Nawaz, announced that the government intended to gradually lower tax rates on real estate transactions and bring the documented value to the same level as actual property prices.
The committee adopted the recommendations of its sub-committee for improving the real estate taxation regime, which also included a scheme to streamline undeclared money by paying a three per cent tax to the Federal Board of Revenue (FBR).
It has been agreed that the deputy commissioner-approved (DC) rates would be gradually increased to bring them closer to actual market prices.
FBR, ruling party MNAs oppose move; say such an offer could lead to money laundering
“The idea is to streamline the whole sector and eradicate the anomalies in real estate transactions,” Mr Sheikh said.
He announced that tax rates on the transfer of property would also be lowered as soon as the prices shown in the document started coming closer to actual market prices.
The committee members were informed by FBR officials that under the current regime, only the minimum property price was listed as DC rates across the country.
Irrespective of actual sale price, property registries are signed at a significantly lower value to save taxes. To streamline the realty sector, the FBR has also started property valuation.
Meanwhile, Mian Abdul Mannan, who helped finalise the settlement in the sub-committee, said the current DC rates were very low while the actual market price was significantly higher.
“But after the presidential ordinance of July 2016, the FBR has also started the valuation of property, which is between the registry price and the market rate,” Mr Mannan said, adding: “The issue is that the FBR has demanded a clarification from buyers and sellers about the difference between the registry price and the FBR valuation, but they had no answer.”
But under the amnesty scheme, buyers and sellers can just pay a three per cent tax on this differential amount and become registered taxpayers.
Apart from FBR Chairman Nisar Mohammad Khan, Parliamentary Secretary for Finance Rana Mohammad Afzal also disagreed with the proposed scheme.
“This one-time amnesty to the real estate sector could lead to the laundering of black money,” the parliamentary secretary said.
Meanwhile, Muttahida Qaumi Movement’s Rasheed Godil, who co-authored the scheme, said the real estate sector had been under stress for three months, mainly due to confusion over justifying the difference between the DC rate and the FBR’s valuation.
“We do not have another way out, except to give the realty sector an opening to grow; this way both buyers and sellers would become tax filers too. Otherwise, investors are already transferring their money to Dubai’s real estate market. Can we do anything about it?”
Mr Godil said that all sides had agreed to the arrangement: the real estate agents are satisfied that market activity will improve and they will be getting a handsome commission on transactions.
The key points of the scheme have been derived from suggestions forwarded by the Association of Builders and Developers (ABAD).
“The main issue is we have the legal option to obtain the registry at the DC rate, so we avail it. There is nothing wrong with it,” ABAD chairman Mohsin Shekhani explained. “But the flip side is that the value of property goes down this way.”
He said that after paying the three per cent tax on this differential amount, builders would have strong documentary backing to prove their financial health.
“Currently, builders do not have enough money left for construction after buying the land,” Mr Shekhani said, adding: “Eventually, someone has to finance the construction.”
Published in Dawn, November 23rd, 2016