The Federal Tax Ombudsman (FTO) has directed the Federal Board of Revenue (FBR) to operationalize the ‘Directorate General of Immovable Property’ for accurate valuation of immovable properties across the country.
An Own Motion investigation under section 9(1) of the FTO Ordinance, 2000 was initiated after an extensive review of DC rates and different valuation SRO’s issued by FBR and market analysis by FTO’s research wing.
The research wing found significant anomalies, inconsistencies, infirmities and discrepancies in valuation tables of immoveable properties in SRO 1180(1)12022 amended vide SRO 1610(1)12022. Consequently, the comments of the Secretary, Revenue Division and Regional Tax Office, Islamabad in terms of Section 10(4) of the FTO Ordinance read with Section 9(1) of the Federal Ombudsmen Institutional Reforms Act, 2013 were called. In response to the notice, comments were received from RTO Islamabad, which were examined and placed on file.
Through the Finance Act, 2018 a new Directorate General under the name & style of ‘Directorate General of Immovable Property’ was created.
This taxation authority was exclusively meant to evolve a complete framework for the valuation of property, appointment of valuers, enforcement and appellate procedures. However, it is strange that since 2019 on one hand FBR’s reliance on Real estate-related transfer taxes has substantially increased but unfortunately this much-needed Directorate General-IMP has been shelved. The ineptitude of FBR can be judged from the simple fact that under the law, the valuation of immovable properties falls in the domain of DG-IMP.
The FTO has directed the FBR Member (Policy Wing) to develop SOPs containing suitable methods of valuation of immovable property. It has also directed FBR to forthwith functionalize the ‘Directorate General of Immovable Property’ established u/s 230F through the Finance Act, 2018 as the same has been non-functional since its establishment.
This would provide an appropriate framework for the proper valuation of immovable property.
FTO has also recommended the FBR to direct Member (Policy) to constitute a standing anomaly committee at appropriate levels to address grievances of the stakeholders on issues of valuation.
The FBR should direct the concerned Member (Policy) to hire competent and experienced valuers for the valuation of properties for transparency and accuracy. The Member (Policy Wing) to formulate a schedule for periodic revision of the valuation tables and report compliance within 90 days, FTO recommended.
Meanwhile, real estate-related withholding taxes were calculated & charged on the basis of valuations of immovable property determined & notified by the concerned District Authorities Revenue.
However, this practice has been replaced with FBR’s in-house valuation regime in big cities because the prevailing valuations fixed by the District Authorities were not at par with the prevailing fair market value.
In addition to the above the current valuation process of immovable properties is being carried out by the tax functionaries Q4 Revenue under the project agenda of taxation reform namely Pakistan Raises (PRRO) in collaboration with the World Bank to develop uniform valuation tables of immovable properties. It is an ongoing process and is to be visited periodically by the respective RTOs.
Consequently, the FBR issued new valuation tables of immovable property in the exercise of powers under sub-section (4) of section 68 of the Income Tax Ordinance, 2001 (the Ordinance) for deduction of withholding taxes under sections 236K and 236C of the Ordinance. Accordingly, specific SROs were issued for 42 cities.
However, third-party examination of the said SROs revealed many anomalies and discrepancies in the notified valuation tables. These anomalies mainly revolved around instances of glaring omissions, valuation infested with loopholes, gross undervaluation, arbitrary tabulation and glaring tabulation mistakes. The plain reading of various SROs issued by FBR from time to time revealed that they are plagued with various inconsistencies, infirmities, and deficiencies apart from lacking uniformity.
The discrepancies and deficiencies render the said SROs lopsided and deficient, in turn creating hurdles for transparency and smooth implementation of tax laws in the real estate sector of the national economy. FBR’s inattention and ineptitude on this account compromise principles of transparency, due diligence and fairness, the FTO order added.
