ISLAMABAD: The Ministry of Foreign Affairs (MoFA) will satisfy the federal cabinet members who raised queries on the proposed sale of State property in Washington DC purportedly due to tax issues and avoid loss of money, well-informed sources told Business Recorder.
On November 30, 2022, the MoFA informed the cabinet that Pakistan Embassy in Washington DC relocated to a purpose-built Chancery Building in April 2003. Since then, the two old Chancery buildings located at 2201 R Street and 2315 Massachusetts Avenue had been lying vacant.
A number of ideas were floated for productive use of the old Chancery buildings; however, none have materialised. In 2010, Prime Minister approved the repair and renovation of both Chancery buildings located at 2315 Massachusetts Avenue and 2201 R Street through a loan of $ 7 million secured from the National Bank of Pakistan, Washington.
The renovation work could not be completed and was delayed inordinately due to Mission not being able to obtain permissions as required from local government departments in time and because of changes in local building codes. Only about 60% of the repair/renovation work at R- street property could be completed till the end of 2012. The building remains in semi- renovated, idle state.
In June 2020, an Inter-Ministerial Committee (IMC) meeting recommended that the property be appraised to determine its market value. Accordingly, realtor M/s Treffers was hired through a competitive process following PPRA rules.
The appraisal report, received in July 2021, evaluated R-Street property on “as is basis” at US$ 4.5 million; and on an “as complete basis” at $ 8.05 million. The IMC in August 2021 unanimously recommended that the building may be sold on an “as is” basis for $ 4.5 million set as a benchmark, through a competitive process.
Pakistan Embassy, after a competitive process in line with PPRA rules, hired realtors M/s Long & Foster, and received six offers. The highest bid was for $ 6.8 million, which was substantially above the threshold of $ 4.5 million, and was submitted by Shahal Khan (Burkhan World Investments, LLC). The IMC made the following unanimous recommendations: (i) The building must be sold-off as early as possible to the highest bidder Shahal Khan (Burkhan World Investment LLC) for $ 6.8 million on as-is basis;(ii) sale proceeds may be surrendered to Federal Consolidated Fund (FCF); (iii) all codal formalities must be followed during sale process; (iv) the pending loan liability amounting to US$ 1.3 million out of total $7 million obtained for renovation of the Government owned buildings at R-Street and Massachusetts Avenue may be paid out of sale proceeds; and (v) the case for utilization of sale proceeds may be processed through the platform of IMC once the Funds were surrendered to the FCF.
In 2018, the diplomatic status of the R-Street property was revoked as it had become non-functional, rendering it liable to local taxes. A sum of $ 819,833 was paid in taxes up to 2019 from the Fund for Improvement of Government owned Buildings FIGOB). Since then, $ 1.3 million in taxes had accumulated which were outstanding. This tax liability would keep growing at $ 100,000 per quarter. Local authorities had indicated that in case the property was sold quickly, outstanding tax liability of $ 1.3 million owed by Government of Pakistan may be waived off as the tax-exempt status of the property would be restored from the date of its revocation.
It was apprised that while the summary was under submission to the Prime Minister office, the Mission in Washington stated that the R-Street property had been listed on tax sale due to non-payment of $ 1.3 million in taxes. The issue of exclusion of the property from tax sale was taken up with the US state Department by Pakistan Mission in Washington and simultaneously with the US Ambassador in Pakistan.
However, the US side expressed its inability to accede to the request indicating that as a special gesture, tax exempt status of the property would be restored if a buyer was notified by November, 2022. This would avert payment of hefty tax liability of $ 1.3 million by the Government of Pakistan. In case of failure to do so, full tax amount of $ 1.3 million plus additional tax for the intervening period would be required to be paid by the Government to prevent auction. The delay may also lead to expiry of buyer’s offer.
The Prime Minister Office, after studying the summary, desired that clarification with regards to the approving authority for sale of government assets at Pakistan Missions abroad may be provided, by Foreign Affairs Division, in consultation with Finance Division.
Accordingly, on July, 19 2022, an Inter-Ministerial committee meeting was held in Finance Division. Representatives from MoFA, Ministry of Housing and works, PPRA and Privatisation Commission attended the meeting. There was a difference of opinion as to which set of rules/laws were applicable to the sale of subject property.
On July 22, 2022, the Finance Division advised the Foreign Affairs Division to resubmit the summary to the PM Office after inclusion of remarks from all concerned on the query raised by Prime Minister Office.
The summary was subsequently resubmitted to the Prime Minister Office with addition of remarks from Privatization Commission, PPRA, Ministry of Housing & Works and Ministry of Law & Justice. On September 22, 2022, the Prime Minister Office returned the summary with directions that the Prime Minister had desired that recommendations of the IMC may be placed before the Federal Cabinet for its consideration and decision in the matter.
In pursuance of the instructions of the Prime Minister, the recommendations of the IMC were placed before the Federal Cabinet for its consideration. The proposal was for the former Chancery building located at 220L R Street only. The other building located at 2315 Massachusetts Avenue, which was completely renovated and was significantly more valuable, was not included in the proposal.
During discussion, some of the members expressed apprehensions with regards to selling the property in question. Terming such overseas properties as significant assets, sale of which may be perceived negatively in media and public at large, these members exhorted on finding other options such as long-term lease where lessee could invest in its repair and renovation.
Majority of the members were, however, of the view that already considerable tax liability had piled up due to lack of decision for a long time and further vacillation could result in forced tax sale of the property.
The offer from the buyer was considerably higher than the $ 4.5 million evaluation by the appraisers, and besides the property in question was an inconsequential asset, which was neither being used as Ambassador’s residence nor was the Embassy housed in it. The members advocated that it made economic sense to avail the good price being offered at the moment rather than eventually lose it to the tax authorities.
The issue of sole mandate of the Privatisation Commission to sell government properties in or outside Pakistan was also discussed. The Minister for Law &Justice clarified that this mandate was only limited to the properties referred by the Federal Government to the Privatisation Commission. Furthermore, under the Rules of Business, 1973, Housing & Works Division had given exemption to MoFA buildings. Therefore, in the interest of avoiding loss of public money and in the larger public interest, the Cabinet may approve sale of the property in question.
MoFA offered to arrange a session of Cabinet members, having any queries on sale of the property, with concerned officials in the Foreign office, to respond to their questions in detail. The need for increasing the allowances of the officers of MoFA was also highlighted.
After threadbare discussion, the Cabinet decided to go ahead with the proposed sale of property with the following directions: (i) transparency and adherence to legal procedures shall be ensured; (ii) Minister for Information shall explain the rationale behind the decision in the media to obviate any public concerns and; (iii) MoFA shall organize a session for the interested Cabinet members to respond to their queries in detail, with respect to sale of the former Chancery building located at 22Ol R Street, Washington DC.
Copyright Business Recorder, 2022
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