AFTER the government announced a concessional construction package and ‘amnesty scheme’ for the real estate industry, investors from abroad and within the country injected billions of rupees as investment into the sector and about 150-200 per cent growth was subsequently witnessed over the last two years.

This indicates a massive growth of the industry both in terms of employment and revenue-generation. While the boom in the industry was still on thin ice, the government had to make adjustments in order to meet the Financial Action Task Force (FATF) conditions so that Pakistan could get off the ‘grey list’. These conditions include dealings in the real estate sector, while goldsmiths and tax consultant firms need to be brought under tight monetary regulations. As the pressure came, the government immediately announced measures to meet the FATF criteria.

Recently, the government unilaterally registered all real estate dealers who had been filing tax returns in the category of ‘designated non-financial business and professions’ (DNFBPs) to meet the anti-money laundering and combating the financing of terrorism (AML/CFT) requirements of the FATF. It has directed them to provide full details of their clients and property transactions after completing customer due diligence.

All the tax-filing real estate dealers are required to submit an online four-page questionnaire within seven days. In case of non-compliance or partial compliance, action as per law will be initiated.

This came at a time when the government’s amnesty scheme was still in place under which the government had promised that, to attract the investors, sources of income for investments would not be asked.

The biggest challenge for the brokers was their difficulties in filling up the questionnaires because the majority of them are semi-literate and lack the basic understanding of how to fill the correct information. Then property dealers lack the technical calibre to convince the clients and, once they ask such questions from the clients, they simply move away to someone else as there are more than one million real estate dealers across the country.

This is injustice with the dealers who happen to be tax-filers. Having been put under such strict legal scrutiny, they would soon be wiped out of the business.

The real estate sector is facing serious confusion in this regard. On the one hand, they are forced to comply with customer due diligence so that the government may meet the said FATF conditions, while, on the other, they have to deal with clients who come to them with the government’s promise that sources of investments and incomes would not be asked. The contradiction is obvious, and it is obviously discouraging investments in the sector.

The most practical way to meet the FATF requirements is to register all the brokers and dealers with the various land-transferring agencies, like the Capital Development Authority (CDA), the Lahore Development Authority (LDA), the Karachi Development Authority (KDA), the Defence Housing Authority (DHA), etc. The minimum criteria for such a registration should be a ‘filer’ status and having a bank account.

This will increase the number of filers and improve tax collection at the same time. This will help the professional agencies report all transactions and the brokers can report cash transactions above Rs2 million.

Adnan Ali Mughal
Islamabad

Published in Dawn, August 22nd, 2021