On a quest to reduce the difference between Deputy Commissioner (DC) rate and the fair market value of real estate, Federal Board of Revenue and representatives of real estate associations are close to reaching a consensus. The result may well be shared through a press conference today.
About one week ago, it was decided between the Finance Minister, FBR officials and real estate representatives that FBR valuers and property stakeholders will simultaneously conduct independent surveys in some 18 cities from across Pakistan. The new rates were to be compared in order to check how close the findings of these two parties were. A certain percentage of tax would be applicable on the difference between the new rate (which would be mutually agreed upon by the two parties) and the DC rate, on all property transactions conducted with the last 5 years. Per FBR’s suggestion, 50% of this difference is also likely to be added to the old DC rate to determine the new DC rate. For further clarity, click here to read complete details.
Per the latest news relayed by local news channels yesterday, the findings of the survey conducted by the two parties were shared with each other in a meeting held between the Special Assistant to Prime Minister on Revenue Haroon Akhtar Khan, FBR officials and real estate representatives. The results were not what the government and FBR officials expected. Per Khan, the difference between current market and the DC rate wasn’t as huge as the authorities concerned had perceived.
According to details published in national dailies today, the current rate, as assessed by the valuers government hired, was about 3% to 15% higher than the existing DC rate. Please note that as compared to the difference in DC rate and the assessed rate of property in Lahore, this difference was higher for property in Karachi and Islamabad. In case of Lahore, the DC value was revised each year, which explains the less stark variation in the two rates.
The findings of the real estate representatives from 21 cities across the country showed a somewhat lower figures than the statistics configured by the valuers the government had hired. Nonetheless, the new rates were two to five times higher than the existing DC rate. Furthermore, based on the two findings, the FBR’s initial suspicion that the DC rate was as much as a 100 times lower than the rate at which property is actually being traded has been ruled out!
In the light of new findings, I wonder if applying the FBR’s proposed formula of adding 50% of the difference between the real time market price and the existing DC rate to determine the new DC rate still stands valid. Moreover, the decision about determining the tax percentage applicable on the old transactions per the mutually agreed upon new DC rate is also pending. Please note that government is considering applying 5% tax on the difference in the DC rate and the new rate.
The real estate representatives and FBR are likely to have a hard time agreeing on a new fair market value rate and percentage of tax applicable on it as this information is vital for the sanction of the proposed tax amnesty scheme on past transactions, which according to independent sources, amounts to PKR 7 trillion. Please not that to turn this money white, the government may apply 5% tax on the difference between the DC rate and the new rate. The way I see it, this percentage will also be determined with mutual consent between the government officials and real estate representatives.
Stay tuned for further updates! Meanwhile the comments section is open for to share you thoughts on this issue.