On a quest to reduce the difference between Deputy Commissioner (DC) rate and the fair market value of real estate, Federal Board of Revenue and representatives of real estate associations are close to reaching a consensus. The result may well be shared through a press conference today.
About one week ago, it was decided between the Finance Minister, FBR officials and real estate representatives that FBR valuers and property stakeholders will simultaneously conduct independent surveys in some 18 cities from across Pakistan. The new rates were to be compared in order to check how close the findings of these two parties were. A certain percentage of tax would be applicable on the difference between the new rate (which would be mutually agreed upon by the two parties) and the DC rate, on all property transactions conducted with the last 5 years. Per FBR’s suggestion, 50% of this difference is also likely to be added to the old DC rate to determine the new DC rate. For further clarity, click here to read complete details.
Per the latest news relayed by local news channels yesterday, the findings of the survey conducted by the two parties were shared with each other in a meeting held between the Special Assistant to Prime Minister on Revenue Haroon Akhtar Khan, FBR officials and real estate representatives. The results were not what the government and FBR officials expected. Per Khan, the difference between current market and the DC rate wasn’t as huge as the authorities concerned had perceived.
According to details published in national dailies today, the current rate, as assessed by the valuers government hired, was about 3% to 15% higher than the existing DC rate. Please note that as compared to the difference in DC rate and the assessed rate of property in Lahore, this difference was higher for property in Karachi and Islamabad. In case of Lahore, the DC value was revised each year, which explains the less stark variation in the two rates.
The findings of the real estate representatives from 21 cities across the country showed a somewhat lower figures than the statistics configured by the valuers the government had hired. Nonetheless, the new rates were two to five times higher than the existing DC rate. Furthermore, based on the two findings, the FBR’s initial suspicion that the DC rate was as much as a 100 times lower than the rate at which property is actually being traded has been ruled out!
In the light of new findings, I wonder if applying the FBR’s proposed formula of adding 50% of the difference between the real time market price and the existing DC rate to determine the new DC rate still stands valid. Moreover, the decision about determining the tax percentage applicable on the old transactions per the mutually agreed upon new DC rate is also pending. Please note that government is considering applying 5% tax on the difference in the DC rate and the new rate.
The real estate representatives and FBR are likely to have a hard time agreeing on a new fair market value rate and percentage of tax applicable on it as this information is vital for the sanction of the proposed tax amnesty scheme on past transactions, which according to independent sources, amounts to PKR 7 trillion. Please not that to turn this money white, the government may apply 5% tax on the difference between the DC rate and the new rate. The way I see it, this percentage will also be determined with mutual consent between the government officials and real estate representatives.
Stay tuned for further updates! Meanwhile the comments section is open for to share you thoughts on this issue.
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Instead of catching black sheep they are slaughtering us by applying new taxes. They should not offer any amnesty scheme or discount on black money at all. They loot us and they are being protected!!
Agree with you. I support the idea of people not having to pay excessive CGT due the exaggerated gap between the DC rate and market value. People should be allowed to regularise the prices after paying a fee. At the same time, FBR should ask them about the source of funds. Anyone who has an honest source of funds, whether local or overseas, should have no qualms about this.
Similar has already happened for the Stock Market investors in previous years… In real estate there are either black sheep or sheep with black (undeclared) money. So it is totally justified to slaughter all or any of them (whichever the Govt can)
Hey,
“I wonder if applying the FBR’s proposed formula of adding 50% of the difference between the real time market price and the existing DC rate to determine the new DC rate still stands valid.”
Can you elaborate this? I do not get what that means.
Thanks
Salman, FBR ne aik formula propose kia tha to fair market rate.
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 for the this year.
what they want to get out of this? so many things are running parallel. What is new preposition no one knows exactly. Half cooked informations are all around.
I would be obliged if someone answer following questions in revised scenario.
* What is capital gain tax %age, and its application
* What about collection of taxes on last five years transactions?
* What would be implications of these federal fair market rates in presence of DC rates which are basically Provincial domain?
Regards
CGT is same as it was last year, i.e. 10%. Previously, CGT was applied on the profit per the DC rate, which was obviously not revealed correctly in the documents.
The main intention behind applying tax on old transactions is to collect tax according to the rate at which these transactions actually took place. That old rate will also be determined between FBR and real estate representative. FBR had initially proposed a tax of 35% on old transaction and 35% penalty on undocumented trades involving black money. The government announced amnesty on it and offered people to declare their assets and pay 5% tax instead to whiten their money, read details here http://www.zameen.com/blog/property-sector-to-get-tax-amnesty-amid-existing-ambiguity.html
The rates will perhaps remain under the provinces. The revision is being done to collect tax per the real time market price instead of the unbelievably low DC rate. FBR will only help fix DC rate and make sure its value changes yearly per the market trends.
Dear Samra, thank you for your detailed answer.
CGT was previously applicable for two year, is it same in new preposition?
What if a plot is sold ten times during last 5 years, would all previous owners come under this scenario for tax collection?
Regards
The duration has been increased from to 5 years instead of two.
Yes.
Solution to Property dispute . If the Govt of Pakistan only believe their own citizens, yes if Govt accept the value both buyer and seller agreed in agreement of sale ,in this situation seller claims only what is revealed in agreement as his white money( in future) and same as for the purchaser as his source will from white money. In this condition both seller and buyer will fight to declare the true amount as this declared money will be white for both of them. i.e if someone send 10 million from abroad his money will remain white as he buys the property on the amount which will remains for him and seller white in future. {the agreement of sell in this condition will be issued by Govt and the sole proof for white money before FBR.}
Sending money from foreign country doesn’t make it white… it is the tax that he will pay on it will make it white. Fortunately, tax on remittance is 0%, but now tax on property will be on ‘market value’ so there is no escape for anyone from this quicksand of taxes (which I consider a justified step from Govt)
According to the reports today, the gap between the two sides is still large. Real estate agents had come up with a ridiculous notion of DC price correction which would have left Karachi (the biggest sinkhole for black money) untouched. The government, thankfully, does not seem to be buying this.
The government itself is culpable in allowing the previous mechanism to prevail for so long, and therefore there is merit in the argument to reduce CGT or to arrive at some other amnesty type mechanism to avoid CGT, but there is no economic or moral justification for recording new transactions at anything other than current market value. And FBR should also be empowered to ask questions about the source of funds.
Any real estate agents who would like to sell me property at what they consider to be the ‘market rates’ are welcome to contact me, especially Mr. Raja Pervez, Head of the Clifton/DHA Agents Association.
same here….as per brokers the value is very less if the value they are suggsting to fbr i am willing to buy from them
From some other sources, it’s been revealed that the real reason why all of a sudden government is after black money is because it is also being used to fund terror in the country. The push is coming from the law and order agencies to dry up the funding for the under world. It is very unlikely that government will back off, even if it wanted to because the noose is being tightened from the highest level. This is just a soft start, and is just the tip of the ice berg. Later it is bound to get much more strict in terms of enforcement. If you cannot prove the source of funds for property investment, you can be in serious trouble and be subject to criminal proceedings, just like money laundering. As a matter of fact, it’s not just the FBR who is tracking where the money is coming from, and being moved about, there are other organisations interested in this information as well. Also probably the government now is more keen to direct investments to government savings schemes, and stock market which are already many folds bigger in volume than property.
dear
it is suggested that for example purana dc rate in dha ph 8 karachi is 8 lac for 50 yards plot…while actula market value of that plot is around 6 crore…. 50% of that is 3crore + old dc rate is 8 lac = new dc rate 3cr 8 lac and this will be considered market price on which taxes will be taken for 1st year while this will increase every year to bring it at par with market value…for buyers they will have to provide 3 cr 8 lac white money to purcahse this plot
Dear All,
Here is the latest update of the decision of Fair Property Evaluation.
http:// www. brecorder. com/top-news/pakistan/311495-govt-real-estate-sector-reach-consensus-on-property-valuation-tax-matters.html
I agree with all of you that the Genuine buyers and Sellers should not be burdened with more taxes. Apparently Govt is targeting the Black Money guys, but at the end all will suffer from Taxes.
Its Samuel William Din from Pakistan, Karachi. I am a insurance agent. I never paid income tax and not submitted e filing of tax returns. I borrowed 200000 rupees from my friends and invested in stock exchange. As my friends had sent me money by cross cheques and online transfer, it remained in my and my wife’s account for one year then we invested. Now FBR has sent notices to me and my wife. My wife is staff nurse in Aga Khan Hospital and pays her tax there. But she has not mentioned this investment in her returns.
Now we are in trouble. Please help us and save us from FBR as they are behind me and my wife.
Thanks. Samuel William Din, Karachi.