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Federal Tax Ombudsman Exposes Failures in FBR’s Property Valuation Mechanism

FBR's Property Valuation Mechanism

The Federal Tax Ombudsman (FTO) has brought to light the Federal Board of Revenue’s (FBR) inability to develop a consistent FBR’s property valuation mechanism in line with fair market values, particularly in major urban centers where properties are valued in the trillions of rupees. 

This revelation, outlined in a recent report, emphasizes the FBR’s shortcomings in generating substantial revenue from the real estate sector, as reported by The News.

FBR’s Struggle to Set Standardized FBR’s Property Valuation Mechanism

FBR's Property Valuation Mechanism

The FTO’s report sheds light on the FBR’s struggle to establish a reliable and standardized property valuation system, particularly in major urban areas. This deficiency has a significant impact on the collection of revenue from the real estate sector. 

Furthermore, the report highlights that despite the formation of the Directorate General Immoveable Property (IMP) in 2018, as per a Parliament-approved law, with a specific mandate to tap into the potential of the real estate sector, the office remains non-operational.

Read more: What is Property DC Valuation? Latest Valuation Rates

Independent Investigation by the FTO

The FTO initiated an independent investigation under Section 9(1) of the FTC Ordinance, 2000. This investigation followed a comprehensive review of Deputy Commissioner (DC) rates, various valuation Statutory Regulatory Orders (SROs) issued by the FBR, and market analysis conducted by the FTO’s research wing.

The research wing’s analysis revealed significant anomalies, inconsistencies, infirmities, and discrepancies in the valuation tables of immovable properties, specifically in SRO 1734(1)12022, dated September 13, 2022. In response, the FBR raised objections regarding the jurisdiction of the FTO’s office, contending that the FTO had no authority over the case.

Glaring Discrepancies in Valuation Rates

The FTO’s investigation uncovered glaring discrepancies in the valuation rates of fair market value set by the FBR, particularly concerning the Rawalpindi district. The report highlighted that SRO 1734(1)12022, dated September 13, 2022, for Rawalpindi was strikingly deficient and sketchy when compared to neighboring ICT Islamabad.

Significant omissions in the valuation rates were identified, especially in the heart of Rawalpindi city, such as Raja Bazaar, Asghar Mall, Sadiqabad, Pirwadhai, and several other residential and commercial areas. 

Additionally, most of the residential and commercial locations in Rawalpindi Cantt were excluded, including areas like Naseer Abad, Khayaban-e-Sir Syed, Morgah, and more. Valuation rates for agricultural lands and Rawalpindi district rural areas were conspicuously absent, and Tehsil Taxila was entirely omitted.

The report also highlighted the omission of valuation rates for the built-up or constructed area and noted that several other Tehsils of the Rawalpindi district received only marginal attention.

Lack of Uniform Valuation Method

The report underscored that the real estate sector experienced significant growth since July 2019, largely due to tax amnesties offered to the sector under section 100D of the Income Tax Ordinance. Rawalpindi, in particular, has witnessed the development of numerous housing societies and projects by various builders and developers.

However, the FTO observed that while issuing SRO 1734, the FBR failed to cross-check publicly available market rates in these schemes and projects. The FBR also failed to provide any methodology to be followed by the valuation committees within their jurisdiction, and no standing anomaly committee was formed to address stakeholder concerns when inconsistencies or incorrect valuations were identified.

The Call for Corrective Measures

The FTO’s report concludes that these lapses and omissions in establishing a uniform valuation method have resulted in inconsistencies, inappropriate valuations, undervaluation, overvaluation, and arbitrary exercises of power. These issues, according to the FTO, constitute maladministration under Section 2(3)(i)(b) and (ii) of the FTC Ordinance, 2000.

Final Words

As a result, the FBR is urged to take corrective measures in the next revised valuation table to ensure fairness, accuracy, and consistency in property valuations, thereby enhancing transparency and equity in the real estate sector.