The evaluators of the Federal Board of Revenue (FBR) must disclose or report the published valuation standards used for the determination of the fair market values of the immovable properties across Pakistan.
The annual report of the Federal Tax Ombudsman (FTO) for 2023 disclosed that the Own Motion investigation under Section 9(1) of the FTO Ordinance, 2000 was initiated after an extensive review of DC rates and different valuation tables of immovable properties.
After thorough investigation, the FTO office found that lack of uniform standards, therefore, resulted in inconsistencies and anomalies in determining fair market value. Three main approaches which should have been used while determining fair market value namely Cost-based approach, Comparison approach and Income capitalization approach, FTO report said.
Since, no SOP was available, therefore, FBR authorities were advised to take guidance from International Valuation Standards (IVS) formulated by International Valuation Standards Council (IVSC) which are generally accepted across the globe:
FTO said the Valuation Standards should be principles based and adequately address nature of the immovable property. Standards are to be created and revised, when necessary, by way of a transparent process after appropriate exposure.
Besides, evaluators must follow principles of integrity, objectivity, impartiality, confidentiality, competence and professionalism while determining valuation of properties.
In addition, evaluators must have the technical skills and knowledge required to appropriately complete the valuation assignment. The evaluators must disclose or report the published valuation standards used for the assignment and comply with those standards. The evaluators must select the basis of value appropriate for the assignment and follow all applicable requirements. The evaluators must disclose significant assumptions and conditions specific to the assignment that may affect the assignment result.
The evaluators must use appropriate information and data inputs in a clear and transparent manner so as to provide a credible valuation. The evaluators must use the appropriate valuation methodology to develop a credible valuation. Any method for property valuation can be used but it must have three components i.e. uniformity, consistency and credibility.
After thoroughly examining the issue across the country, FTO made the following recommendations to remove inconsistencies and bring uniformity in valuation rates:-
(i) Functionalize the ‘Directorate General of Immovable Property’ established u/s 230F through Finance Act, 2018 as the same is non-functional since its establishment which would provide an appropriate framework for proper valuation of immovable property.
(ii) Member (Policy) FBR should develop an SOP containing suitable methods of valuation of immovable property.
(iii) Member (Policy) FBR should constitute “standing anomaly committee” at appropriate levels to address grievances of the stakeholders on issues of valuation. iv. Member (Policy) FBR may hire competent and experienced evaluators for valuation of properties for transparency and accuracy.
