Car and property buying hopefuls can rejoice, filers or non- filers. The contentious restriction of barring non- filers from buying locally assembled cars or property of more than Rs4million has been reversed back by this government through the mini- budget. It seems the PTI government is not prepared to open the can of worms that the criminally low tax base is, just yet. Short-term stability steps reminiscent of governments in the recent past is on the agenda. But perhaps the government has to pick its battles (read: “Mini-budget: PTI takes middle ground, Sep 19, 2018).
In his speech, Asad Umar told that the pressures to end the restriction came from overseas Pakistanis who are not filers but who want to buy cars and purchase land in Pakistan. Back at the time when this restriction was imposed, Miftah Ismail stood firmly behind the decision and ensured that the process for tax filing for overseas Pakistanis would be simplified significantly. The new government could easily have gone with that, or made an exemption for overseas Pakistanis or allowed the use of Nicop as the national tax number (NTN) and so on. There were many ways to address that issue.
But the likelier explanation for the reversal is that the pressures were coming from the influential real estate development and automobile lobbies—the former experiencing a significant liquidity crunch and the latter a growing sales slump post-restriction.
The real estate market is notoriously known to be a conduit for parking untaxed money in Pakistan, and in fact, is a big part of the informal economy. This greyness has contributed to the speculative hikes in land prices that ultimately have prohibited market access to many genuine property buyers, especially those from the low-to-middle income households, worsening yet the mounting housing shortage in the country. This is also a huge cause for the distrust and hesitancy from commercial banks in lending for home and construction loans.
The restriction on non-filers was one of the strategies the then-government took to curb speculative transactions, and to reduce the flow of grey capital injected into the real estate market thereby forbidding the rich and powerful from accumulating wealth while staying outside the ambit of the tax net. And it was effective.
It could have paved the way for documentation and a cleaner real estate market which in turn would have contributed toward providing affordable housing solutions to a 60 percent urban population starved for it. In fact, the PTI government’s move to remove this restriction will make it doubly difficult for it to provide the five million houses it has committed to the people and seems rather counter intuitive to its goals of cleaning and bringing order to the house.
On the car purchasing front, it wasn’t a remarkably effective policy and left much to be desired. The restriction would have led to an increase in investor driven bulk purchases and cars sold on premiums since the same restriction was not imposed on the transfer of vehicles. Non-filers simply would have bought from investors at an added cost. Meanwhile, the restriction was only based on cars bought on cash, so non-filers seeking car financing would have been fine. Meanwhile, those who could not buy local cars could easily have shifted to used cars (read more: “autos: anti-growth prospects”, May 25, 2018).
However, the restriction was a start in the right direction and it could have been built upon to address the bottlenecks, given the right motivation. In any case, it was more than what could be said about any government in the past that had decided to tackle this mammoth undertaking.
Of course, while this move builds confidence of the two key sectors, the PTI favoured political elites and big stake investors operating informally with complete impunity and enjoying quick and easy returns; it sends the wrong message to the tax compliant businesses and investors. It is also a strong disincentive for people to file taxes, while on a larger scale, it derails the process of regulating the real estate sector which has been a long time coming. Perhaps the PTI government has other long-term plans to broaden the tax base that it will unveil once the economy stabilizes. We lie in wait for such plans-s with baited breath.
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