Islamabad: The Federal Board of Revenue (FBR) has introduced a significant increase in property valuation rates by up to 80% across 56 cities in Pakistan, effective November 1. This adjustment aims to bring declared property values closer to actual market prices, addressing long-standing disparities that have affected tax collections.
New Cities Added Under FBR’s Valuation Framework
The latest revision expands the FBR’s coverage to 12 additional cities, including Bannu, Chiniot, Kotli Sattian, and Ghora Gali, in addition to the 44 cities already covered. FBR Chairman Rashid Mahmood Langrial emphasized that these changes represent a “moderate upward revision,” influenced by factors such as property type, location, and market dynamics.
This is part of the FBR’s ongoing effort to standardize property valuations, with similar adjustments made in 2018, 2019, 2021, and 2022. The updated valuation tables were made publicly available on the FBR website on October 31.
Implications for Federal Taxes and Property Transactions
The revised valuations will impact federal tax calculations, including capital gains tax (CGT) and withholding tax, both of which are often assessed on values lower than actual market prices. In Pakistan, property taxes are frequently calculated on collector-declared values, which are typically below true transaction prices. Under the Income Tax Ordinance (Sections 236C, 236K, and 7E), the FBR collects withholding taxes, along with a 5% federal excise duty applied to property transactions as of the latest budget. In the last fiscal year, nearly Rs150 billion was collected under these sections, with additional revenue figures expected soon.
Challenges in Setting Fair Market Values
Since 2016, the FBR has focused on aligning declared values with actual market prices, particularly in urban centers. For local properties, district collectors usually issue valuation tables under Section 27-A of the Stamp Act of 1899. However, accurate valuation remains a challenge due to the wide range of prices across various cities and housing societies. According to a senior FBR official, recent revisions increased rates marginally, lower than initially projected. Benchmarking involved mid-range plot values to ensure a balanced adjustment. Although some inaccuracies in the valuation tables may arise, the FBR has committed to updating and correcting as needed.
Economic Impact and Future of Real Estate Taxation
A World Bank study suggests that property transactions in a market like Pakistan could yield between Rs600 billion and Rs700 billion in tax revenue. However, current collections are estimated at only Rs200 billion, highlighting significant untapped potential. FBR officials have noted that while the government aims to divert investments from real estate to more productive sectors, the real estate market remains somewhat sluggish, and transaction volumes in housing societies continue to be low.
The FBR’s strategic move to revise property valuations is part of its broader goal to increase transparency and accountability in the real estate sector. By aligning declared values more closely with market rates, the FBR hopes to increase tax revenues, support infrastructure development, and stabilize the property market, ultimately contributing to economic growth and sustainable urban development.
