If you thought property purchased or sold only after July 1, 2016 would be evaluated per the new mechanism and be taxed accordingly, you have been wrong!
Federal Board of Revenue (FBR) has released further details on New Property Evaluation Mechanism, which is now termed as Procedural Law. The valuation mechanism for immovable property will be applicable on property deals done between 2006 and 2016. In other words, property owners and investors who haven’t paid their property taxes on transactions done between these 10 years will now have to pay up.
Once again, the terms are different for tax filers and non-filers. The tax filers will pay taxes on property they purchased and sold in the last 5 years while the duration for non-filers is 10 years. Evaluation of immovable property will be carried out by the evaluators appointed by State Bank of Pakistan (SBP).
According to news details, FBR plans to collect 35% tax and a similar amount in fine from people who allegedly invested their black money in real estate during these years. If needed, the chances of facing a two-year imprisonment also stand valid.
This new rule allows FBR’s Commissioner for Inland Revenue to refer immovable property deals to the panel of evaluators appointed by the SBP. From the tone of this news, it doesn’t appear that studying record of the past deals is done just to know the correct current market value of the property. If the intention is to collect tax on the past trades, many people can go bankrupt paying taxes on property they have purchased and sold in all these years.
The press release reads that this mechanism to check property trade records of the past year will help the government collect 35% tax on the black money that has been cycled in the real estate since 2006. And not to mention, there would a 35% fine on tax evaders. Fortunately or unfortunately, tax as well as fine percentage is the same for filers and non-filers.
Furthermore, SBP has committed to ensure that property evaluators’ panel, comprising experienced personals, will complete the evaluation process in a transparent manner. This process, per the press release, will be completed within a month.
You see, it was a long press release claiming that known tax experts, chartered accountants and patriotic business community of Pakistan had widely appreciated the decision. These “experts” believe that the new mechanism will not only help collect tax of billions of rupees, it will also help FBR effectively enforce its writ, paving way for establishing a fair and equitable taxation system throughout the country.
Meanwhile, as you read this article, another major development is taking place. The Excise and Taxation Department has started to prepare lists of plots that are lying vacant for the last two years. This is being done to collect taxes from the respective plot owners.
According to Excise and Taxation Director Rizwan Sherwani, about 650,000 plots lie vacant at the moment but he did not clarify if the plots were located just in Lahore or throughout Punjab or the country for that matter. The owners whose plots are vacant will be required to pay 10% of the property tax applicable on the respective locality.
Well, for all the valid reasons, stock market in Pakistan is currently doing well in terms of trade volume and that’s despite the fact that stock exchange is currently down worldwide. The stock traders are excited about these new taxes levied on real estate and are anticipating that property investors, discouraged by the havocs of Budget 2016-17, will instead invest in the stock industry. So they are apparently being proactive by investing heavily in stocks.
On the other hand, I am wondering if the random returns offered by the uncertain stock market of Pakistan can entice property investors, especially when they have options to invest in tax-free properties abroad.
Let’s hope that the new tax policy that targets the real estate sector of Pakistan doesn’t backfire and result in doing more harm than good.