Karachi, November 6, 2024 – The Federal Board of Revenue (FBR) is under mounting pressure to clarify its recent changes to Karachi property valuation guidelines, which appear to remove previously allowed rebates on certain property classifications. This call for clarity stems from concerns over the sudden elimination of rebates that were available under prior notifications, causing uncertainty among property owners and potential investors.
Owais Yakoob Kapadia, a prominent advocate of the High Court, has formally addressed the issue, raising crucial points in a letter to the FBR Chairman. Kapadia contends that the recent SRO, dated October 29, 2024, has retracted rebates without prior notice or public consultation, contradicting the provisions outlined in the previous SRO No. 345(I)/2022, dated March 2, 2022. This unexpected shift has created widespread confusion within the real estate sector and raised concerns about the potential adverse effects on property valuations and market stability in Karachi.
In his letter, Kapadia meticulously outlined the valuation structure and rebate provisions stipulated in the March 2022 notification. This notification provided detailed guidelines on how property valuations were determined, including allowances for residential and commercial properties based on their age, location, and structural components.
The March 2022 SRO set forth a well-structured valuation system that allowed for certain rebates on property values, especially for buildings with additional stories and older structures. The key points from the earlier SRO, which have now been seemingly excluded, included the following:
1. Base Values for Covered Areas: Valuation of property was calculated per square yard of the covered area on the ground floor, with adjustments for additional floors. This method applied to both residential and commercial properties, allowing for straightforward valuation based on actual built-up space.
2. Rebates for Multi-Storey Buildings: For residential buildings with more than one storey, an incremental valuation increase of 25% was allowed for each additional story above the ground floor. This provision was especially advantageous for owners of multi-storey properties, helping to more accurately reflect the valuation of added space without significantly inflating property tax obligations.
3. Property Age-Based Deductions: A sliding scale of rebates was applied to properties based on their age, recognizing the depreciation and reduced market value of older structures. For residential buildings:
o Structures between 5-10 years old were eligible for a 5% reduction in value.
o Buildings aged 10-15 years qualified for a 7.5% reduction.
o Properties older than 20 years were valued equivalent to an open plot, reflecting maximum depreciation.
For flats and apartments, a similar deduction scale was applied, with reductions reaching up to 50% for properties over 30 years old. Commercial buildings were also eligible for age-based reductions, though at different percentages.
4. Special Valuation Adjustments: The previous SRO also contained provisions for unique property characteristics. For instance:
o Defence Housing Authority Plots: Properties within the Defence Housing Authority (DHA) facing major roads were assessed at a premium value, while those with less favorable placements, such as rear or school-facing plots, qualified for a 25% reduction.
o High-Rise Buildings: Buildings with more than five stories received distinct valuation treatment.
These provisions were developed to align property valuations more closely with the actual market value of properties, considering factors that impact both desirability and livability. By introducing these reductions, the FBR sought to maintain fairness in tax assessments for both residential and commercial property owners.
Kapadia’s letter to the FBR stresses that the recent notification effectively nullifies these longstanding rebates, sparking a wave of uncertainty in the real estate market. According to Kapadia, this lack of clarity and abrupt departure from prior policy puts the public at risk of financial strain, as many property owners rely on these rebates to mitigate their tax liabilities.
The newly issued SRO, which omits any mention of the previously allowed deductions, could lead to significant tax hikes for property owners of older buildings or multi-storey structures. Without the rebates, properties that were previously deemed “tax-friendly” due to age or configuration could see inflated tax assessments, disrupting financial planning for property owners.
In his appeal to the FBR, Kapadia urged for immediate clarification on whether the rebate provisions will be permanently removed or merely require administrative revision in the notification. The absence of these rebates may hinder property transactions, slow down real estate investments, and potentially devalue older properties, affecting both individual owners and the broader economy.
“Given the significant impact on public welfare, it is imperative that the FBR revisits this decision,” Kapadia wrote. “Issuing clear guidance to confirm whether the previous rebates remain in effect will bring much-needed relief and prevent market destabilization.”
The real estate sector in Karachi, one of the largest and most dynamic in Pakistan, has long been influenced by the FBR’s valuation tables and tax policies. Developers, investors, and property owners often rely on the predictability of such measures to make informed financial decisions. A sudden policy reversal or ambiguity in rebate applicability has the potential to deter investment, stalling the real estate market’s growth trajectory.
Market analysts warn that, without a clear response from the FBR, Karachi’s property values could experience fluctuations, affecting property transfers, rental rates, and investor confidence. The lack of rebates may also disproportionately impact those owning older properties, leading to unintended financial burdens.
