IT is an open secret in Pakistan’s real estate market that between the transaction value and officially documented value of property, an enormous gap exists which hinders tax collection and allows black money transactions to flourish.

The FBR’s announcement, therefore, that it is hiking up property valuation rates across the country further by an average of 15pc to 25pc is a welcome step in the journey to increasing tax revenue and limiting the injection of black money in the economy.

Effective immediately, the new property valuation rate stands at 60pc of the actual market value and is to be implemented in 21 major cities of the country.

The upward revision of official rates has been a long time coming. The previous government attempted to revise the rates in 2016 and was somewhat successful after negotiations with real estate stakeholders, but it put off notifying the second phase of revisions out of fear of a backlash in the run-up to the general election last summer.

As a result, property transactions have continued with glaring anomalies. There remains a massive discrepancy between what is sold or purchased and what is documented, much to the detriment of the government that is the ultimate loser in this scenario as stamp duty is paid on official rates.

By allowing this gap to exist, the government would not only be facilitating business for those who want to park untaxed, illegal wealth in real estate but also making it difficult to determine the true worth of the sector — thus losing out on billions of rupees in tax revenue. Another entity at the losing end is the middle-class and upper-middle-class buyer, who is forced to confront high property prices determined by injections of undocumented wealth.

An important aspect of the fresh revision is also that it is in keeping with FATF’s recommendations to track transactions in the property market in a bid to curb money laundering and terror financing.

It is then in the government’s best interest — and very much in line with Prime Minister Imran Khan’s promises to pursue tax evaders — to back the FBR’s revised rates, even in the face of resistance or complaints of a downswing in property prices.

In the past, there has been immense pressure from stakeholders to take back such steps, as private housing authorities — even one as organised as the DHA — benefit from the inconsistency. The government must stay firm, as in this case, what is good for business is not necessarily good for the economy.

Aside from increasing tax revenue, in the long run the revised valuation rates are a step closer to bringing transparency in the property market which has becoming increasingly expensive and opaque.

Published in Dawn, February 3rd, 2019