Low property values causing huge tax losses in Pakistan

KARACHI: A large sum of tax revenue has been lost due to unrealistic declaration of property values at the time of transaction.

The World Bank in its recent report on Pakistan pointed out significant size of exemptions and concessions granted by the country every year.

“Substantial exemptions also apply to property taxes, whereby properties below a certain size are exempted regardless of location, while revenue is also lost due to unrealistically low valuations used for taxation purposes,” the World Bank said in its recent report on Pakistan Revenue Mobilization Project.

The report pointed out that The Capital Gains Tax (CGT) returns negligible receipts due to the zero rate applied to capital gains from the sale of immovable property after more than four years of ownership, and rates of 5-10 percent for properties sold after one to four years of ownership.

The World Bank said that the efforts of tax authorities to broaden the tax base would involve scaling back the extensive tax expenditure from exemptions.

“Multiple exemptions and discounted rates to select industries, economic actors, and economic activities (e.g. sugar, textiles, and fertilizer industries; ‘associations’ in the real estate sector; imports for infrastructure projects under the China- Pakistan Economic Corridor) are granted in each year’s budget law, which distort competition and economic actors’ incentives.”

The report said that in FY2017/18, Pakistan’s tax expenditure (i.e., tax revenue foregone due to exemptions and concessional rates) was estimated at 2 percent of GDP, primarily due to exemptions from General Sales Tax (GST) and customs duties.

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