Now the property deal

Thought through?

Apparently the property deal Dar sb hammered out with the real estate sector the other day is another one of those Turkish inspirations that the PML-N thinks will do nicely in Pakistan as well. This one’s aimed at increasing the tax-to-GDP ratio, of course. And the finance ministry already expects the first year to fetch seven to eight times more revenue; “to the tune of Rs60-70 billion in the current fiscal” in the words of Dar sb himself. Yet necessary as bringing this sector into the net of reform was, it was essential to think the deal through to the end. And on that front the ministry might have left a few questions unanswered.

Transferring responsibility for valuations from SBP to FBR makes sense on paper – you would expect it to be that much more vigilant since prices are directly related to taxes – but two small points stand out. One, the credibility and ability of FBR itself. The Board has been a giant letdown, despite repeated promises by successive governments, in terms of doing its basic job. Expanding its base of operations without necessary capacity building reforms would actually be a step back, especially since it has been known to be easily arm-twisted by influential powers. And two, the provision of consulting with dealers before finalising valuations. If the government has factored in recurring stalemates, it has not shared its solutions.

Then there is the point about reducing the time that owners would have to hold property before being exempt from capital gains tax (from five years to three). Since this obviously facilitates ‘flipping’, which more often than not stimulates artificial booms and bubbles, how helpful can it really be? And as far as expectations of people responding to the one time amnesty, and subsequently ‘whitening’ thirty-something percent of the black economy, PML-N need not look further than its own similar smart ideas not too far back to make an educated comparison. Once again, a necessary piece of reform has not been thoroughly thought through.