Land/Property valuation is a common practice in real estate and other property-related dealings. The main objective of property valuation is to collect tax on properties (Residential and Commercial). Property taxes act as financial instruments of local government, account for nearly three-quarters of local tax collections and are a significant local revenue source. To increase tax collection in the country, the government progressively revises the property rates to bring every sector under the tax net. Recently, the Federal Board of Revenue (FBR) has announced to increase in the property valuation rates for immovable properties in different cities. The cities include Rawalpindi, Dera Ismail Khan, Attock, Sheikhupura, Faisalabad, Bahawalnagar, Chakwal, Gujranwala, Hafizabad, Haripur, Jhelum, Bahawalpur, Khushab, Lasbella, Gwadar, Lodhran, Mandi Bahauddin, Multan, Rahim Yar Khan, Sargodha, Toba Tek Singh, Jhang, Sahiwal and Islamabad.
The valuation rates have been increased from 10 to 30 per cent on average and also included certain rural areas to bring them on a par with the DC rates during the current fiscal year. These revised valuation rates will likely help collect more taxes from immovable property. However, the FBR’s notified rates are still lower than the existing fair market value.
The land valuation system in Pakistan is based on a decade-old system. Currently, in Pakistan, there are three different rates for a property. The first one is decided by the Federal Board of Revenue (FBR), the second is determined by the Deputy Commissioner (DC), and the third one is the Market rate. Due to the difference in property valuation rates, the government is unable to generate sufficient tax revenue because people are buying and selling property at market rates.
Also, the difference in these rates increases malpractices in the property sector, discouraging investors to make investments which decreases the overall growth of the sector. However, the government needs to bring all the valuation rates to one table to prevent malpractices in the sector. In addition, a clear and unbiased property valuation system is needed to create a streamlined real estate sector.
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