Property valuation tables: There's no federal intervention, FBR chief tells Senators

Chairman Federal Board of Revenue (FBR) Nisar Muhammad Khan has stated that the federal government has not intervened in the provincial domain by issuing valuation tables of immovable properties for collection of Capital Gains Tax (CGT) and withholding tax under a policy which is aimed at bringing real estate sector into the tax net.

A meeting of the Senate Standing Committee on Finance, which was chaired by Saleem Mandviwala held here on Friday to consider a tax amendment law, witnessed a boycott by Senators from Awami National Party Ilyas Bilour, Pakistan Tehreek-e-Insaaf Mohsin Aziz and Kamil Ali Agha of Pakistan Muslim League (Q) against what they stated "we will not allow injustice to small provinces by supporting the proposed legislation".

The chairman FBR stated, "We have not asked the provinces to increase the rate of stamp duty and this is a federal tax on income. The law and rates for various cities have been finalised after consultations with stakeholders and tax collection from builders would increase considerably in the current fiscal year against Rs 800 million from across the country during previous year."

The committee recommended an annual evaluation of properties in 21 districts and proposed establishment of a committee or a board headed by Chairman FBR with representation from parliamentarians, technical experts as well as people from civil society for evaluation of properties for the taxation purpose. Someone may challenge the law in court, said Fateh Muhammad Hassani while Mohsin Aziz stated that "undocumented economy is real issue but the proposed measure would increase tax collection and not document the real estate sector."

The meeting was informed that prior to the Finance Act 2016, fair market value for the purpose of investigating the source of investment in acquisition of immovable properties was determined by the Commissioner. However, under the Income Tax Rules fair market value was to be determined at a value fixed for the purpose of collecting stamp duty by the Provincial revenue authorities and it was binding upon the Commissioner Inland Revenue. Similarly, the Capital Gain Tax on the sale of immovable properties under Section 37 and collection of tax under Sections 236 C and 236 K of the Income Tax Ordinance, 2001 used to be computed on the value notified by the provincial revenue authorities. Through the Finance Act 2016, the powers of Commissioners under section 68 have been withdrawn and valuation is to be carried out by a panel of approved valuers of State Bank of Pakistan. Similarly, the binding nature of the value determined by the Provincial revenue authorities for the purpose of collection of the stamp duty has been withdrawn.

It was agreed that instead of valuation to be made by approved valuers of State Bank of Pakistan, the FBR will notify a fair market valuation table itself after consultation with all the stakeholders for the purpose of Section 37(1A), 111, 236-C and 236-K of the Income Tax Ordinance, 2001. Consequently amendments in Income Tax Ordinance, 2001 were introduced through Income Tax (Amendment) Ordinance, 2016 wherein the FBR was empowered to issue SROs notifying the fair market value of immovable properties in 21 major cities of the country.

The holding period of property for the purpose of Capital Gain Tax has also been reduced from five to three years and rates have also been rationalised according to the holding period. The meeting was also informed that prior to the Finance Act 2016, input tax adjustment of sales tax paid on services to provincial revenue authorities was admissible against output tax liability under the Sales Tax Act, 1990. A similar adjustment of sales tax on goods was admissible as input tax in the provincial laws. Consequently, through the Finance Act, 2016 sales tax paid on services to provincial revenue authorities was no more adjustable against output tax liability under the Sales Tax Act, 1990. Later, it was proposed that the omitted sub-clause (d) of clause (14) of Section 2 of the Sales Tax Act,1990 may be re-introduced in view of the consensus arrived at between Federal Board of Revenue and provincial revenue authorities.