FBR Raised Property Valuation Rates by 80% in 56 Cities

ISLAMABAD: The Federal Board of Revenue (FBR) has raised property valuation rates by up to 80% across 56 cities to bring them closer to market rates. This change aims to increase revenue collection and encourage investment into more productive sectors of the economy. The new rates will come into effect from November 1st, 2024.

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Including New Cities

This latest revision includes 12 new cities, such as Bannu, Chiniot, Kotli Sattian, and Ghora Gali. Previously, these changes were applied to 44 cities. The government had already introduced several tax measures for the real estate sector in the latest budget.

Moderate Revisions

FBR Chairman Rashid Mahmood Langrial stated that the valuation rates were moderately revised upward. The new prices vary depending on the type of property, its location, and other factors. This is the fifth time the tax authority has adjusted property valuations, with previous changes made in 2018, 2019, 2021, and 2022.

Publication of New Rates

The FBR started publishing the updated valuation tables on its website late Tuesday. By the time this report was filed, they were available for around a dozen cities.

Impact on Federal Taxes

The revised valuations will be used to calculate federal taxes, including capital gains tax (CGT) and withholding tax. Unlike in many other countries where taxes are based on transaction value, in Pakistan, the declared collector value is often significantly lower than the actual transaction price.

The FBR collects withholding taxes under Sections 236C, 236K, and 7E of the Income Tax Ordinance, along with a 5% federal excise duty imposed on property transactions in the last budget. Provinces have also increased district collector (DC) rates for property transactions.

Revenue Collection in the Previous Fiscal Year

In the previous fiscal year, the FBR collected nearly Rs150 billion in advance income tax under Sections 236C and 236K for property transactions. The figures for revenue collected under Section 7E and other measures are not yet available.

Fair Market Prices

Since 2016, the FBR has been working to determine fair market property prices in major urban centres. In provinces, district collectors issue valuation tables under Section 27-A of the Stamp Act of 1899.

Challenges in Determining True Values

A senior tax official involved in the valuation revision process mentioned that the increases were less dramatic than expected. The new rates were based on mid-range plot values and are subject to potential errors, which will be corrected once identified.

Determining true transaction values remains challenging for the FBR, as property prices vary significantly between societies and cities. Despite the government’s intention to shift cash away from real estate into productive sectors, transactions in many housing societies have stalled, with no clear evidence of funds being redirected.

Potential for Increased Revenue

A World Bank study estimates that real estate transactions in a comparable economy to Pakistan could generate between Rs600bn and Rs700bn in tax revenue. However, the tax official estimated Pakistan’s collection to be roughly Rs200bn.