Only 12 Pakistanis disclosed properties valued over PKR 10 billion amid 'massive undervaluation'

Rashid Mahmood Langrial, chairman of Pakistan’s Federal Board of Revenue (FBR), disclosed significant undervaluation in property transactions within the country's real estate sector.

Speaking to the National Assembly's Finance and Revenue Committee on Monday, Langrial highlighted widespread under-declaration of income tax returns, which he said is inconsistent with the lavish lifestyles of many individuals who invest in properties, operate accounts, and run businesses.

The level of under-valuation and mis-declaration in the real estate sector is evident from the fact that during fiscal year 2023-24, over 93.7% of property transactions in Pakistan were valued below PKR 5 million, Langrial stated. He further revealed that only 12 individuals disclosed property assets worth over PKR 10 billion.

Langrial outlined the implications of the proposed Tax Laws (Amendment) Bill, 2024, which he said would impact only 2.5% of people, while 95% of households would remain unaffected. The proposed legislation seeks to ban economic transactions for ineligible individuals and businesses, aiming to increase tax collection and address a PKR 1.6 trillion revenue gap in the top 5% income bracket, compared to PKR 140 billion in the remaining 90-95%.

Investors in the property sector would be required to disclose their sources of investment, Langrial added. However, the FBR is working on reducing transaction taxes in the real estate sector to make compliance easier, the FBR chief stated

Real estate transactions in numbers

In FY24, Pakistan recorded 1.695 million property transactions. Of these, 93.7% (1,589,328 transactions) were valued below PKR 5 million. Other key data from the FBR's report include:

• Transactions above PKR 50 million: 3,250 (0.2%)
• Transactions between PKR 40 million and PKR 50 million: 1,383 (0.1%)
• Transactions between PKR 30 million and PKR 40 million: 3,291 (0.2%)
• Transactions between PKR 20 million and PKR 30 million: 7,276 (0.4%)
• Transactions between PKR 5 million and PKR 10 million: 64,635 (3.8%)

Real estate representatives' concerns

The National Assembly committee was urged by real estate stakeholders to amend the proposed bill.

Arif Habib, chairman of Arif Habib Dolmen REIT Management Limited, recommended that sources of investment in property transactions valued up to PKR 50 million should not be questioned, suggesting that the facility be allowed for at least a year to encourage property sector registrations.

He warned that it could have severe implications on the sector, with tax officials gaining extensive authority. Habib argued that the real estate sector plays a vital role in economic development, contributing approximately 115% in taxes.

He also emphasized that the bill might discourage investment, potentially diverting funds to foreign markets like Dubai. The chairman recommended measures to encourage corporate developers and ease compliance for property investors.

Meanwhile, Langrial underscored that the proposed amendments are essential for curbing under-valuation and increasing transparency in the property sector.