FBR Valuation tables – what are they?

FBR Valuation tables are tables that show the fair market value of real estate as determined with mutual consent of the Federal Board of Revenue (FBR) and representatives from the real estate sector of Pakistan. They were released in August, 2017. Finalising the rates and including them in the tables was one of the property market’s highlights from the second half of 2016.

Why were these tables needed?

In Pakistan, real estate taxes were calculated and imposed on the DC value of immovable property. The practice of renewing DC rates wasn’t following any set rules or criteria and in fact, the DC rates in many parts of Pakistan weren’t changed for several years in the past, according to sources. In addition, when changed, the rates were increased only marginally, according to the information shared in a news report.

This practice does not apply anymore to the developed countries where property taxes are paid on the market value of property. Under the new tax regime, it was decided that for taxes collected under the federation, a new list of property rates is needed for the tax departments to meet their tax targets, reported news sources. For this purpose, the FBR appointed its valuators to assess the fair market value of property in 21 major cities.

The mechanism adopted to assess rates

The lists initially shared with the realtors across the country caused panic among them as they believed that the rates quoted in them were too high, as reported by the news sources back then. In addition, the realtors also believed that the same rule cannot be applied to assess property value of every unit as some property units in the same neighbourhood can have different market values depending on various factors.

In order to address the concerns of representatives from the real estate sector, it was decided that the FBR officials and real estate agents will conduct independent surveys to determine the fair market value of real estate, initially in 18 cities. The news sources reported that the survey results were compared to finalise the new list of valuation tables which was to be later used by the FBR for collecting CGT and withholding tax.

As a result of this survey conducted by FBR valuators, the market rate of property in some cities was 3% to 13% higher than the DC rates. According to the findings of a research done by the real estate agents, the DC rate was 2% to 5% lower than the market rate, according to the information shared by the local news media.

Later, mutual consensus was developed between the FBR and representatives of the real estate associations that the fair market value of the property (valuation tables) will be calculated by adding 50% of the difference between DC (old) rate and the real time market rate of property to DC (old) rate. While the old DC rate was increased by 40% to become the new DC rate, read the news reports.

Meanwhile, both parties agreed that difference in the DC rate and fair market value with the market rate will be dropped gradually over the years. Under this agreement. The FBR was to increase the valuation table by 30% for the year 2017, according to news reports.

How did the market react to this?

Under the agreed formula, the FBR released new valuation tables for Karachi, Islamabad, Lahore, Peshawar, Gwadar, Quetta, Rawalpindi, Multan, Gujranwala, Faisalabad, Hyderabad, Jhang, Gujrat, Sialkot, Mardan, Sargodha, Abbottabad and Sukkur. Soon after the new tables were released, certain anomalies were spotted in these tables, which called for the associations from the real estate sector to demand for a revision, stated news sources.

The main concern property agents shared about these tables was the rates being too high for many prime and posh areas cities such as Lahore, Karachi, Islamabad, Faisalabad and Peshawar. In fact, if you speak to property agents from the above cities, they will tell you that the rates are much higher for certain properties. Many of these anomalies found in the FBR valuation tables were also discussed in news reports.

With higher rates (mentioned in the FBR Valuation Tables), the taxes collected on these rates were also higher – a factor that discouraged real estate investors. The representatives from the real estate sector were once again disturbed about the whole change incorporated under the new tax regime and asked for revision in these rates. After several rounds of negotiation, the FBR agreed to revise the rates for certain projects throughout the country as not just that the rates quoted for these projects were high, the property transaction volume there had also dropped at a great rate, according to reports.

The current status

Despite the revision expected to fix anomalies in the FBR Valuation Tables, as committed by the board itself, nothing has been done in this regard. In addition, the gradual rise in the tables, as announced by the FBR, is still pending due to the uncertainties that prevail at the national level. In this regard, the board has reportedly done the homework for finalising new rates for the revised table but is looking for the right time to share them, stated news reports.

Meanwhile, according to news reports, property transactions, the volume for which has dropped by a large extent, take place under the new tax regime, where the Capital Gains Tax and Withholding Tax is calculated on the rates mentioned in the FBR tables, while the Stamp Duty and Capital Value Tax are calculated on the revised DC rates.

Just like you, we are also waiting for the FBR to share new tables and fix the anomalies in the ones it shared last year. As soon as there is an update on it, we will keep you posted. In the meantime, if you have feedback on this article or a question for us, use the comments section below.

We also recommend you check out the Zameen Forum thread on Budget 2016-17: 5-8% tax on property transactions. If you have some particular questions in mind for our Forum’s property gurus, you can also start a new discussion.