The federal government is planning to obtain powers for compulsorily purchasing property massively under-declared in terms of value or where the transactions are carried out at exceptionally low deputy commissioner (DC rates), from 2010-11. The Revenue Advisory Council and the Federal Board of Revenue have also been proposed that the applicability of the CVT may encompass the property deals in the corporate housing societies.
Moreover the condition of submitting computerised national identity card (CNIC) be made mandatory for transfer of property from next fiscal year. Sources told Business Recorder on Thursday that the Indian tax machinery has the authority to compulsorily purchase property where gross under-valuation has been confirmed to avert under-reporting of taxes.
It is suggested that the Pakistani tax managers may seek same powers in coming budget to discourage under-valuation of property for bringing maximum transactions into the tax net. Presently, provincial authorities are applying registration value (DC Value) on buying and selling of property at exceptionally low rates. Any property cannot be registered below the minimum valuation threshold of the DC rates at provincial level. These are minimum rates for the purpose of charging transfer fee/stamp duty on transfer of property.
In case where transfer deeds valuation has been specified, it will be adopted for application of capital value tax (CVT). However, if the valuation of property has not been written, the FBR has specified rates for application of the CVT. If these are minimum rates/values, why people are not ready to record this value of immovable property for payment of the CVT? Sources questioned.
The deputy commissioners fixed property transfer rates should be revised upward as the existing rates fixed in the far past are very low. The government wanted to discourage sales and purchase of property at the DC rates and powers may be obtained to purchase property in cases where deals were made at an extraordinary low DC rates. This would be instrumental in enhancement of the DC rates bringing them in conformity with the market value.
It is necessary to check ongoing massive under-valuation of property at provincial level. These DC rates form basis for collection of the CVT on the immovable property. In this regard, the federal government is likely to obtain powers to purchase property at DC rates in case the property is being sold below the existing DC rates.
According to the proposal, the government may upward revise DC values in close liaison with provincial governments for proper collection of the CVT on immovable property from next fiscal. "A change in the law is required to empower the government to retain the right to buy the property at DC rates in an effort to revise these rates. It was also suggested that the corporate societies be brought in the ambit of the CVT and CNIC made essential for transfer of property," the proposal added.
Background of the issue revealed the Federal Board of Revenue (FBR) has witnessed a major shortfall in CVT collection from immovable property. Despite enhancement of CVT from 2 to 4 percent on immovable property, there was substantial decline in revenue collection under this head. The FBR and officials of the Finance Ministry agreed that there are valuation, administrative and legislative issues which prevented the desired collection of the CVT during current fiscal.
The major reason of low CVT collection is the under-valuation of property. The values of property have been fixed as per laid down DC rates within the respective districts. The existing DC rates are not true reflection of market values and such rates should be at par with the actual market values.
Sources said that most of the corporate housing societies have their internal mechanism of transfer of property. It has been proposed to bring transfers of property being done by the housing societies within the scope of the CVT. Similarly, it may also be made mandatory for the buyers and sellers of property, within the housing schemes, to submit their CNICs for documentation purposes.