LAHORE: The Punjab government has officially replaced its 66-year-old property tax system with a modern, Capital Value (CV) model. Effective from Jan 1, 2025, it is expected to end an era of discretionary property assessments and aims to unlock billions in previously lost revenue.

The transition follows amendments to the Punjab Urban Immovable Property Tax Act of 1958, passed as part of the Finance Bill 2024.

Officials, speaking to Dawn, described the move as “the most significant structural reform in recent memory, designed to create a more transparent, equitable, and efficient tax regime”.

It is learnt that the push for reform, led by Excise and Taxation Secretary Masood Mukhtar, gained momentum in early 2023. A briefing by leading economists revealed that Punjab, with a population of over 120 million, was generating less property tax revenue than the Indian city of Chennai having 10m population. The province’s property tax-to-GDP ratio was a mere 0.05 per cent, significantly below the 0.3pc average for lower and middle-income countries.

Capital value model to end discretionary assessments, offers reward to whistleblowers; properties valued below Rs5m exempt from tax

Officials told Dawn that the previous Annual Rental Value (ARV) system was widely seen as flawed and susceptible to corruption. Tax inspectors held broad discretion in assessing property values, often leading to under-valuations in exchange for bribes. Valuation tables were outdated and lacked transparency, with no effective mechanisms for audits or public scrutiny.

“The ARV system had effectively become a parallel economy,” noted an official involved in the reform process and added, “We were not just losing revenue; we were bleeding credibility.”

Officials say a pivotal study by professors at the Lahore University of Management Sciences demonstrated that a CV-based assessment, grounded in objective metrics like land area and officially notified DC (District Collector) rates, could significantly boost revenue while reducing administrative discretion. Simulations based on 20,000 properties indicated that a CV system could achieve revenue neutrality at a tax rate of just 0.07pc. This would also allow for the inclusion of nearly 500,000 properties that were previously untaxed.

“Most developed economies utilise capital value as their tax base because it is transparent, predictable, and easily audited,” the study highlighted and added, “It empowers both the state and the citizen”.

After receiving approval from the provincial Resource Mobilisation Committee (RMC), officials said the excise department embarked on the task of digitising the valuation of nearly five million properties and integrating DC valuation tables. This effort was met with considerable resistance from field staff accustomed to the old system, they added.

In order to overcome institutional resistance, the department introduced a novel incentive programme, offering cash rewards to whistleblowers and officials who expose tax evasion. Additionally, a new self-assessment system was approved, empowering citizens to file their property tax returns voluntarily, similar to the Federal Board of Revenue’s (FBR) income tax model.

The reform, officials say, also introduces a more equitable system of exemptions. Previously, area-based exemptions, such as for five-marla homes, have been replaced with value-based ones. Under the new policy, all properties valued below Rs5m are exempt from property tax, regardless of their size or location. This change is intended to prevent owners of high-value properties in affluent areas from benefiting from relief meant for low-income citizens.

Since concerns were raised about potential legal challenges and public confusion before the programme launch, a senior official told Dawn that the department opted for a partial remission strategy to mitigate the risks. For the current year, the official said the existing taxpayers would be shielded from any tax increases, while newly included properties would be liable for only 50pc of their calculated tax in 2025.

“This phased approach is designed to ensure a smooth transition without provoking public backlash,” he stated.

With the new system now in place, the official said the focus would now shift to public awareness campaigns, training for tax officials, and inter-agency coordination. Future plans include linking tax incentives to environmentally friendly upgrades, such as the installation of solar panels and water harvesting systems, which could potentially allow Punjab to monetise environmental gains through carbon credits.

A policy expert says, “This is more than just tax reform. It’s about building a modern, transparent state. This is just the beginning.”

Published in Dawn, August 12th, 2025