Realtors, FBR agree on new valuation formula

• Finance Minister Ishaq Dar says FBR will notify valuations of properties throughout the country
• 10 per cent tax will be levied on selling property in first year of purchase, 7.5 per cent in second year and five percent in third year
• Market values will be increased in consultation with stakeholders as govt scales down CGT to three years with three different slabs

The Federal Board of Revenue (FBR) has been authorised to notify valuations of properties throughout the country, including Karachi, Lahore and Islamabad, Finance Minister Ishaq Dar said in a press conference at FBR’s Islamabad office on Saturday.

The minister announced that the government has accepted the demands of realtors by reducing the period of property holding from five years to three years.

Dar said the valuation of properties in major cities has already been decided in recently held meetings between the FBR and realtors, while the valuation process for some small cities is in progress and will also be decided by the EBR in the next few days. “Till that time the DC valuation rate in these cities will be upheld,” he added.

Taking back his previous decision of property holding up to five years, Dar said that the meeting decided that the property holding period will be three years throughout the country from now on. “Since mostly overseas Pakistanis were investing in the construction business, they had been complaining that five year was a longer period for the construction industry,” he added.

In the budget 2016-17, Dar said, the government had fixed 10 per cent Capital Gain Tax (CGT) on properties for up to five years, but now it is being fixed at 10 per cent for one year, 7.5 per cent for one to two years, and five per cent for two to three 3 years. “It (CGT) has been divided into three slabs to benefit the stakeholders,” he added.

The minister said, “We have fixed five per cent CGT for those property holders who purchased properties before July 1, 2016. And if they sell their properties before three years they will have to pay 5 per cent Capital Gain Tax.”

Per new process, Dar said, the valuation notification of the FBR will also determine future tax value of the withholding tax, property tax and CGT. He also asked the provincial governments to adopt the same procedures for their provinces to improve the payment of property taxes.

The minister informed that the Capital Gain Tax will be implemented on properties of above Rs 4 million instead of Rs 3 million. Earlier, the government had announced to take CGT on property worth Rs 3 million in the last budget 2016-17.

Dar said now as the stakeholders of the real estate have agreed to these terms and conditions, the Federal Board of Revenue will notify the valuations instead of the State Bank of Pakistan. Both the stakeholders and governments will benefit from the new valuation of the FBR, he added.

The minister said that these valuations of properties will be for yearly basis and the same valuations issue would be discussed in every federal budget.

President FPCCI Rauf Alam said “the government has accepted our all demands by resolving the property valuation issue after a detailed meetings with Haroon Akhtar, the prime minister’s adviser, FBR chairman and other officers, and thanked Ishaq Dar who announced the long-awaited property valuation matter.

He said all the stakeholders have already accepted the valuation matters discussed with the FBR, and added that both the government and real estate stakeholders would benefit from it.

Another source present in the meeting said “the government has accepted only a demand of the real estate stakeholders of reducing the holding-period from five years to three years, but our demand was to bring it to two years”.

He said the government has totally rejected the current DC valuation process and introduced another formula of fixing property value through the FBR. “We had already opposed this system. The FBR valuation would create problems and open doors of corruptions,” he added.

Earlier, the government had tasked the State Bank with valuation of property as the stakeholders were not satisfied with the FBR and its officials.