Amending the amendments proposed in Finance Act 2016 – an account of recent happenings
Posted: 21 Jul 2016 06:01 AM PDT
The recent standstill seen in the market in terms of property sale and purchase activity followed by protests held by property agents throughout the country lead to a formal meeting between Special Assistant to Prime Minister on Revenue Haroon Akhtar Khan, Federal Board of Revenue (FBR) senior officials and representatives of Federation of Pakistan Chambers of Commerce and Industries and property dealers association held a couple of days ago. The meeting turned out to be successful, and the government has taken back its decision to valuate property through State Bank of Pakistan’s appointed valuators. Congratulations readers!
With regard to how the offices concerned will now valuate the property and reduce the stark difference between Deputy Commissioner (DC) Rate and real time market value, several theories are circulating the market. Please note that the final decision is yet to be taken and a meeting will be held in this regard between Finance Minister Ishaq Dar and FBR officials. Before details of this meeting are shared with the media through a press conference, nothing can be said with certainty about how the process will actually take place.
On the other hand, the details of the meeting held between Haroon Akhtar and the representatives of real estate associations are being circulated widely through WhatsApp and related mediums. I have also come across a few voice messages and also spoke to the Hayatabad Dealers Association President Mazhar Wakeel Durrani, who was also present. The meeting had a 4-point-agenda to discuss. According to Durrani, Khan and FBR officials graciously agreed to discard the appointment of SBP valuators to determine the fair market value of the property. Instead, they put forward a proposal to increase the current DC rate by 40% this year and continue increasing gradually over a period of 5 or more years until this difference is removed.
According to a news report published in Dawn today, the FBR is considering a specific formula to set a reasonable mechanism to evaluate fair market value of property throughout the country. Per this report, a mutual consensus was developed between the government officials and stakeholders from the real estate and trade industry on the proposed formula. This formula suggests that 50% of the difference between the DC rate and the real time market rate of the property be added to the old DC rate, to get the new DC rate, and this will be considered the fair market of property during the next two to four years. If I understand correctly, the remaining difference will still be removed in the future, if not right away.
Another amendment in the Finance Act 2016 that bothers real estate agents is the proposal of taxing property transactions done in the last five years by filers and 10 years by non-filers and the imposition of an equal amount of penalty. The agents want the government to give one-time amnesty in this regard and leave the old transactions be.
Furthermore, in case of Capital Gain Tax, they have specifically asked Khan and FBR officials to not increase the 2 year condition to 5 years. In terms of increased tax ratio for the filers and non-filers, the agents also want a similar amnesty. To be clear, the stakeholders have no reservations about penalizing the non-filers, they simply don’t want this penalty to call for a similar rise in tax applicable on the filers.
So this is some of the information that might help you get an idea about what actually happened in the meeting and what the possible outcomes could be. What do you think is ultimately going to happen? Let me know through your comments below.
Amendments recommended by FBR in Income Tax Ordinace 2001 rolled back – What are the implications?
Negotiations held between the government and representatives of real estate associations on amendments proposed in the Income tax ordinance 2001 have been successful. The government has taken back almost all of these amendments and has shown a willingness to levy new taxes that would be finalized after consulting the stakeholders.
While the criticism stands true that amending the FBR’s attempts to stop black money from entering the market and seeing a tremendous gain on the original amount isn’t something a sane mind can support, it is also true that introducing such a massive revamp on such an urgent basis and not expecting to face any resistance would be equally insane.
What surprises me here is that these negotiations weren’t prolonged unnecessarily. You see, when it comes to money matters, we can all show flexibility. For instance, if the intention to block the black money through these tax amendment can cause a sudden and sharp drop in terms of sale and purchase activity seen in the real estate sector, implementation of these amendment will certainly have even more serious repercussions, which means that the huge tax income collected from the real estate sector by the FBR will dwindle. Not just this, but the flight of capital can very well make things worse for the country’s economy.
Per news shared in local press and news media, the Federal Board of Revenue (FBR)’s proposal to determine fair market value of real estate through State Bank of Pakistan’s valuators has been turned down by the Finance Minister Ishaq Dar. According to details, the FBR is also not going to hold any audit of real estate transactions recorded in the past. The new means to determine the fair market value of real estate will stand valid for one year alone. In other words, rates will be increased, per the set formula, each year.
Dar has invited the property dealers to share fair market value chart from 18 cities with the FBR in 5 days. This chart will help the FBR determine the property rates throughout the country. In the next meeting, which is scheduled for July 27, 2017, dealers will share their findings with the FBR. It is quite likely that the fair market value from these 18 cities will suffice to assess real time market value of real estate in the country and thus be acceptable for the FBR
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