Land valuation is an important practice in real estate and other property-related dealings. A clear and unbiased property valuation system is needed to create a streamlined real estate sector. Properly valuing real estate can lead to multiple benefits, including greater market acceptance among investors, supply and demand regulation, protection from speculation, and cost savings.
The land valuation system in Pakistan is based on a decades-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.
The main objective of the property valuation is to collect taxes from residential and commercial properties. Property taxes are the financial tool of local government, account for nearly three-quarters of local tax collections and are a significant local revenue source.
Recently, to increase tax revenues, the former government had decided to increase property valuation rates from 100% to 700%. However, this decision was strongly opposed by many stakeholders, including real estate agents and town developers, as the unprecedented increase had left the business sector stagnant. Therefore, after receiving several complaints from different quarters, FBR ordered the cancellation of the new valuation model.
Currently, the incumbent government has realised that the decision to bring down the valuation rates by the former government resulted in a reduction in the number of transactions by over 26%. The total transactions from January 2020 to January 2021 stood at 15,298, which slipped to 11,281 from May 2021 to April 2022 (Express Tribune,2022). This revision of valuation rates caused over one-fourth reduction in tax collection and eroded Rs1.4 trillion of land valuation (Express Tribune,2022).
Therefore, to end the massive tax evasion, the Prime Minister of Pakistan has instructed the authorities to urgently devise a plan to increase the property valuation rates in the upcoming budget. This step aims to collect more taxes from properties, including commercial, residential, and high rise building units.