ABAD sends budget proposals 2018-19 to government

KARACHI: A fixed tax regime is the best way to generate more taxes in a transparent way. It will also improve Pakistan’s international rankings in the Ease of Doing Business index, said Association of Builders and Developers (ABAD) in its budget proposals sent to the federal government here on Tuesday.

A fixed tax regime may be made mandatory for the project approved after the first of July, 2018. The project approved earlier may be given an option either to opt for the prevailing system of assessment or to go for a fixed tax on their ongoing projects.  This may encourage the taxpayers to opt for fixed tax, it added.

In order to achieve the maximum growth and investment in Pakistan’s real estate sector by the expatriate and local communities, no question should be asked for the source of funding to anyone who buys his first unit in Pakistan. The incentive should be available for at least 3 years in the same way it was available for investment in shares through the stock exchange.

The exemption from withholding taxes on low-cost properties should be enhanced from the existing Rs4 million to Rs8 million. This is in view of the exponential increases in property valuation instituted by the Federal Board of Revenue (FBR).

The proposals said that mild steel bars are an essential component raw-material for the construction industry. International prices of steel bars dipped to a historic low to $220 per ton, therefore, to safeguard the local steel manufacturers, FBR slapped RD and ARD on steel imports to stem the growing trend of steel imports.

However, steel prices have recovered internationally and have reached an all-time high of $620 per ton. ABAD suggested that the RD and ARD on steel imports be removed to safeguard the construction industry.

This will result in additional revenues due to higher international prices. This will also help improve the availability of steel at competitive rates, thereby bringing down the cost of construction by 15 per cent for the common man. At the same time, it will discourage cartels in the steel business.

It further proposed to the government that the undervaluation and rationalisation of Property Valuation Tables and higher transfer taxes at the provincial and federal level are a constant source of frustration and confusion for ABAD members and their eventual customers, therefore the federal and provincial governments work together to create a single valuation table while simultaneously lowering federal and provincial taxes so that the property is transferred at actual value. This will lead to better documentation of the economy, lead to the corporatisation of real-estate developers and builders as well as encourage banks, DFI’s, private equity and other capital raising institutions to invest and finance real-estate development.

Through concerted efforts, this can be achieved. As a step towards this, a uniform valuation table with the rationalisation of taxes is implemented in Islamabad which is a federal territory and will be simpler to implement. It suggests that the ICT administration, ABAD, FBR and other stakeholders develop a working group to finalise these modalities and implement this for the budget 2018-19.

ABAD recognises the quantum of revenue that federal and provincial taxation brings to the national kitty through property transfer charges. To streamline anomalies and to encourage real estate investment, it proposes that the areas where valuation has been wrongly done may be rectified. It is recommended that the FBR meets with the stakeholders of all areas to rectify valuation distortions that have raised valuation beyond actual market values resulting in the strangulation of the industry.

It recommends that the Federal Government may charge one per cent in total for withholding tax, advance income tax and capital gain tax from buyers and sellers (0.5 per cent each) from seller to buyer. Prevailing federal government taxes charged by FBR on property transactions are approximately 3 per cent of FBR valuation table excluding the capital gain tax.  The federal government will charge 3 per cent of FBR value as per today’s valuation or 1 per cent of fair market value whichever (total taxes) is higher. This may result in increasing the revenue many folds.

As the property valuations have increased many folds, ABAD suggest that the withholding tax (236-W) on property transfer be dialed back to 1 per cent from 3 per cent. As this tax is not adjustable, actual receipts will not suffer due to higher valuations and will reduce the burden on the tax payer. The tax may be recovered either at 1 per cent of market value or 3 per cent FBR value, whichever is higher.

ABAD also proposed that taxation under the provision of 236W (3 per cent) be made optional for those who, under normal circumstances are able to reconcile the new values in their wealth statement without taking advantage of the provision of 236W.

Arshad Hussain
Arshad Hussain
The author is business reporter at Pakistan Today. He can be reached at [email protected] He tweets @ArshadH47736937
- Advertisment -

Must Read

Covid-19 death toll nears 11,000 with 46 more fatalities

ISLAMABAD: The coronavirus pandemic claimed another 46 lives in the past 24 hours, surging the overall death toll to 10,997, said the National Command...