FBR shares rules to probe property investments

The Federal Board of Revenue (FBR) has issued income tax rules, specifying procedures for the valuation of immoveable assets. The board has made it clear that the fair market value of property will be the value notified by the FBR through its valuation tables. It has clarified the matter to ensure that there is no ambiguity in the investigation process, through which cases of unexplained assets and investments made into the property sector will be probed under Section 111 of the Income Tax Ordinance 2001. To define the procedure for asset valuation, FBR has issued Income Tax Rules 2002 through S.R.O 978 (I) 2016.



With these rules, FBR gives legal cover to investigate property transactions and probe the sources of investment. Currently, three different kinds of values are used to register properties: DC rate of the property, FBR’s fair market value as listed in the valuation tables, and the value mentioned on the sale agreement, which is the actual price at which the property transaction takes place. If the tax authority is able to identify the actual value of the property through the agreement or bank transaction receipt, it will form the actual basis to probe the source of investment under section 111 of the Income Tax Ordinance.

According to a notification issued by FBR, the value of property determined for the purposes of Section 111 of the Income Tax Ordinance 2001 shall be:

The value notified by the board
The rate fixed by the District Officer (Revenue) or any other provincial authority empowered to determine property rates for the purpose of calculating stamp duty if a property falls in an area where the fair market value is yet to be identified by the FBR.
The average sale price recorded in the revenue record of the area in which the land is located if the land in question is agricultural.
Higher of: i) Sale price recorded in the instrument of sale ii) DC Rate or the fair value determined by the FBR
The following clause is applicable if the sale price of property recorded in the instrument of sale is greater than the value determined under clauses 1, 2 and 3.

Higher of: i) Sale price of an auctioned property ii) Fair market value determined under clauses 1, 2 and 3.

With these advancements, it appears to me that the FBR and the authorities entitled to collect taxes are determined to implement the new tax regime and also track sources of investment invested in the real estate sector. Let’s see how real estate agents and brokers deal with this situation that has created a major standstill in the realty sector, causing a drop of about 80% in property transaction volume.

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