Real Estate Associations has decided to take up to the Ministry of Finance and Federal Board of Revenue (FBR) to withdraw additional taxation measures on real estate sector particularly appointment of valuers to avoid total closure of real estate business diverting investments from Pakistan to other lucrative foreign destinations.
Chaudhry Abdul Rauf President Islamabad Estate Agents Association (IEAA) told Business Recorder on Sunday that the appointment of valuers for valuation of immovable properties would only open another door of corruption. The valuers would usually ask the concerned property owners to specify the market price of any immovable property. They usually depend on the estate agents and real estate business investors in this regard. The experience of appointing valuers for evaluation of immovable properties failed in the past. Such kind of unilateral decisions without consultation of the concerned sector would result in total closure of the businesses.
If 300 to 400 billion rupees of black money, un-taxed money or informal economy has been invested in real estate sector of Pakistan, what would happen if all such investment has been diverted to countries offering lucrative packages to Pakistanis to purchase apartments, flats, houses etc with nationality of that country. All such investment in real estate sector would be diverted to other countries and Federal Board of Revenue would loss huge revenue on account of taxes applicable on real estate sector, he said.
The government must realise that the un-taxed money is being invested within Pakistan and not outside the country. What would happen when all such huge investments would be diverted to foreign destinations, already ready to entertain new investors.
Referring to Monday's meeting with Finance Minister Ishaq Dar, he was optimist that the government has timely taken notice of the taxation on real estate sector and Prime Minister has asked the government to resolve the issue. There is no logic behind heavy taxation on real estate sector already subjected to multiple taxes including withholding tax, capital value tax, capital gains tax ad many provincial taxes. The doubling of withholding tax on buying and selling of immovable properties has been done without taking into confidence the concerned sector. The measure relating to capital gains tax would also hurt investments in real estate sector.
President IEAA said that the government has the option to enhance the DC rates on immovable properties and improve existing system for assessment of market value of the properties. In the presence of globally accepted system of DC rates, there is no justification to appoint valuers for assessment of immovable properties. Presently, the value of any property for the purpose of taxation, commercial or residential is quoted as its deputy collector rate. All types of taxes are applied on the deputy collector value of the property.
The deputy collector value is a yardstick used to ensure correct collection of taxes.
Taking about implications of the Finance Act 2016 on the real estate sector, he said that not a single registry has been seen in Karachi since imposition of new taxes. Similar kind of situation has been witnessed in DHA of Lahore and business in federal capital.
Initially, the government wanted to bring real estate business into the tax net. When we started operating into the documented regime, the government considerably enhanced taxes on the said sector and decided to appoint valuers. There is no logic behind heavy taxation on this sector, he maintained.
He was confident that the government would hear their viewpoint and withdraw all irrational taxation on the real estate sector.
He said that the Finance Act 2016 has levied capital gain tax at the rate of 10% on sale of a property held for a period up to five years, whereas, capital gains on property sold after holding for a period of more than five years were exempt from tax. This measure would also have negative impact on buying and selling of properties. Across the globe, buying and selling of property is a profitable business. Different countries offer lucrative schemes to foreigners for investment in the real estate sector.
The business of real estate is not a crime and it should not be subjected to heavy taxation or measures which may lead to diversion of investment to other countries, he added.
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