THE revised property valuations notified by the FBR for 40 cities for the purpose of collecting federal taxes — withholding tax on transactions and capital gains tax on profits — must fetch the government substantial additional revenues. The new valuation rates have significantly narrowed the gap between the market prices of immovable property and the rates at which the FBR used to tax such transactions until now. In addition to enhancing the property valuation rates, the board has also extended the scope of its taxes on property from 21 to 40 cities. Even where properties were already being taxed on the basis of the 2016 valuation tables, the FBR has extended the coverage of withholding tax and capital gains to areas that remained outside their scope so far. The fresh valuations cover all types of immovable properties: commercial, residential, apartments etc.
The need for revising the valuation tables had long been felt due to a massive spike in property prices in recent years, particularly after a tax amnesty was announced by the PTI government last year to jump-start a sluggish economy. The IMF had also been pursuing the FBR to revise the valuation rates in accordance with the new market prices. The move could be an important step towards the documentation of our real estate and construction industry and may discourage the parking of illicit money in property, besides improving revenues. That said, it remains a reality that federal taxes on property transactions, imposed with the express aim of broadening the income tax net, are but an encroachment on the tax jurisdictions of provincial governments — and by extension of local governments. This is in spite of the fact that the federal government is technically taxing the income of the buyers and sellers and not the property involved. Global experience shows that property taxes are perhaps the most important levy that can improve the quality of public services and bridge the service delivery gap in the urban areas. In Pakistan, the yield from taxes on urban immovable property has historically remained negligible because provincial governments always balk at taxing property, just like agriculture income, for fear of a popular political backlash, or under pressure from large investors and developers. With the quality and coverage of public service delivery consistently deteriorating in large urban centres such as Karachi, it is time the provinces started implementing reforms to increase revenues from taxes on property and wrest back the ground lost to the FBR.
Published in Dawn, December 3rd, 2021