Real estate challenge

Published March 14, 2023

FORMER FBR chairman Shabbar Zaidi’s assertion that real estate is ‘the parking lot’ of untaxed or dirty money is not a new disclosure. Nonetheless, his claim that he was summoned by the evidently displeased (former) army chief when he attempted to take measures to tax real estate transactions and stop the business of ‘plot files’ to discourage people from hiding their illegal money, shows the extent to which the security establishment is invested in this sector — through housing development projects under the DHA brand in major cities of the country. It is common knowledge that Pakistan’s business elite, bureaucracy, politicians, judges and other affluent sections have been the biggest beneficiaries of the unregulated and undertaxed real estate sector. No wonder, every government has encouraged the investment of dirty money in real estate through multiple tax amnesties, in addition to heavily subsidising investors by not regulating and taxing them — at the expense of the economy’s organised sectors.

Besides causing massive tax revenue losses to the national exchequer, the unregulated real estate business is responsible for several other serious issues facing the country as well. For starters, it is a major cause of unplanned urbanisation that has eaten into swathes of prime fertile agricultural land. Land prices are artificially inflated by developers through the sale of unregistered plot files that have acquired the status of a private parallel currency, making housing inaccessible to low- and middle-income segments of the population. It is also one of the main reasons for the increasing inequality in society. Additionally, the real estate sector forms the bulk of the country’s informal economy, the size of which is estimated to be somewhere between 30pc and 50pc of the documented portion of the economy. It would not be wrong to assume that no effort to reform the nation’s flawed tax system and document the economy can succeed without first making it impossible to park one’s dirty money in real estate assets.

Published in Dawn, March 14th, 2023

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