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EDITORIAL: The Federal Board of Revenue (FBR) has deferred the application of the new property valuation rates till 16 January 2022 due to considerable stakeholder opposition – stakeholders that include real estate agents, builders and town developers whose “windfall” profit margins would plummet due to the new valuation based on actual market rates. Property tax is not treated equally in Pakistan: (i) urban property is subject to tax, however, the valuation of the property is well below the market rate and, additionally, the buyers and the sellers have developed a culture of grossly understating the sale amount agreed, which in turn reflects poor tax collections under this head even though this is considered a highly lucrative business in the country.

Prime Minister Imran Khan has been a major supporter of the construction sector through targeted fiscal incentives/cheap credit (including a time bound amnesty scheme post-pandemic) with the overarching objective of providing affordable housing to the poor and to fuel economic activity in 40 plus related industries. However, this must not be taken to imply that those associated with the sector are allowed to shirk their due taxes; and (ii) tax on agriculture income remains exempt with provinces still not charging at the rate applicable on other income groups, including the salaried people.

Sadly, this deferment is reminiscent of other deferments on taxation measures taken by the incumbent government, as well as its predecessors, that were designed to levy taxes on the ability to pay principal, direct taxes on all sources of income, rather than continuing reliance on indirect taxes whose incidence on the poor is greater than on the rich. An example is the Tax Laws (Third Amendment) Ordinance September 2021 that allows National Database and Registration Authority (NADRA) to share Pakistani citizens’ data with FBR for the purpose of broadening the tax base and empowers FBR to discontinue gas and electricity connections, including tier-1 retailers who are either not registered, or if registered, not integrated in terms of section 3(9A) of the Sales Tax Act 1990.

Traders have already held a number of violent protests against the implementation of this ordinance and while the government seems to be resisting deferment yet at the same time there is no indication that the tax authorities are proactively proceeding with implementation of this ordinance.

The need to restructure the existing tax system has not only been highlighted time and again by the multilaterals and bilateral lenders and donors but has also been acknowledged by the past three administrations.

However, organised resistance by those who would be directly impacted, either through the use of considerable influence by the elite in national and provincial assemblies, or disrupting economic activity around the country through violent street protests has stayed the hand of governments. That needs must change.

The Prime Minister recently lamented in an interview to the President of Zaytuna University that elite capture and lack of rule of law in Pakistan are responsible for failure to provide basic social and physical infrastructure to people. And this is quite evident in the taxation structure of the country.

Copyright Business Recorder, 2021

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