It has not been very long that FBR revised the valuation of immovable property in main urban centres of the country. It took a long time coming as the evaluation rates of property desperately needed a reappraisal as most of the illegal financial gains were parked in real estate all throughout the country.
It appeared the right time to reappraise the valuation of immovable property and FBR has done precisely that. The action taken in this respect was bound to create ripples and accordingly it did. FBR is always under dark shadows as a national institution that has been mired in some controversy since after the present government took office as is evident from the fact that it has been subjected to many shakeups particularly in respect of its chairmen who have been too frequently changed.
It must be borne in mind that the real estate sector has been declared a high risk area for money laundering by the Financial Action Task Force (FATF) with the FBR declared as regulatory authority to discipline the sector. As noted earlier this segment of national economy is the repository of black money and the taxation authorities have been trying to tap the real revenue potential of this sector.
It has been noted since many years that due to various lacunas, the tax collection has always remained negligible compared with the transactions and returns on them. It is from the purpose of collecting federal taxes, mainly the withholding tax on transactions and capital gains tax on profits that the FBR has also finalised revised property valuations.
Almost immediately after the declaration of the revised dates the FBR was compelled to extend the deadline for implementing the revised valuation rates of properties in 40 major urban cities by holding its notification in abeyance till 31 January, 2022.
The FBR had increased the valuation rates in 40 different cities up to 700 per cent through official notification issued on 1 December, 2021 that resulted in hue and cry in all over the country. Then the FBR took the decision to put the revised valuation in abeyance till 16 January, 2022, as all the chief commissioners were instructed to constitute the Valuation Review Committee (VRC) and revise the valuation rates in consultation with the concerned stakeholders.
Through the Official Memorandum, the revised valuation rates were placed in abeyance till 16 January, 2022. However, nothing has been finalised so far because under the World Bank (WB) conditions, it is one of the conditions of $400 million loan to Pakistan that it raises revenues and in this respect it is stated that that the valuation rates of real estate would be brought close to the real market values. The FBR remained busy in finalising the mini-budget and getting approval from Parliament, so the valuation rates for the real estate sector could not be finalised.
Shaukat Tarin was expected to take up this issue on 18 January, 2022, for holding consultations with the FBR and relevant stakeholders but he was not feeling well and all his engagements got cancelled and the meeting on the valuation rate of properties could not take place.
In the meanwhile, the FBR issued a fresh Office Memorandum on 18 January, 2022, for extending the deadline on implementing the revised valuation rates in abeyance till 31 January, 2022.
Now the new valuation rates would be notified on 1 February, 2022.
It is reported that the delay caused in getting this matter finalised has created an awkward situation in the last two working days of the week, no transaction could take place all over the country, especially in 40 major urban cities, because the revised notification of valuation of properties had become effective whereby the rates had gone up to 700 per cent.
The real estate sector has demanded that the FBR should withdraw the notification and has suggested that the valuation rates of properties should be done by the provincial governments. They maintain that the provincial governments were charging Stamp Duty in accordance with DC rates and that the federal government should also charge Gains Tax and Advance Tax in accordance with the existing DC rates.
Another worrying factor is that Pakistan’s gross financing requirements are estimated to go up to $30 billion in the next budget for 2022-23, leaving no other options for the government but to seek a fresh IMF loan after the expiry of the existing programme in September 2022.
Despite the recently announced National Security Policy recently advising refraining from getting loans from the IMF and other multilateral creditors, the country in reality, will have no other option but to get a loan from the IMF in the wake of yawning gross financing requirements.
It is clearly pointed out that Pakistan could only avoid seeking the IMF loan if the country manages to radically increase non-debt creating dollar inflows through raising Pakistan-made ups exports, remittances and foreign direct investment in a substantial manner.
The policy of restricting imports does not provide permanent solutions, mainly because the government had to rely heavily on imports on account of getting raw material to increase the exports.
The key question now staring Pakistani financial managers is that how the country is going to manage the external financing of $45 to $50 billion over the next 18-month period spanning January-June 2021-22 and next fiscal year 2022-23. Keeping in view the existing debt trap it seems impossible to manage the external financing requirements without the support of the IMF programme.
The external debt servicing requirement is projected to touch $13 to $13.5 billion in the next budget 2022-23 and the current account deficit may not go down from $12 to $14 billion.
The current account deficit for the ongoing fiscal year 2021-22 is projected to remain around $15 to $16 billion, while the external debt repayments, including principal and mark-up, will be standing at $12.4 billion.
The current account deficit stood at $7.1 billion for the first five months period of the current fiscal year and was all set to hover around $1.5 to $2 billion for December 2021, so it might go close to $9 billion for the first half period of the ongoing fiscal year 2021-22.
It was the same level of the current account deficit in the first half of 2017-18 under the PMLN-led government, when it had touched the $18 billion mark. In wake of this situation there was a need to evolve a consensus among all the relevant stakeholders to forget about the economic growth for a few years and manage the external sector’s vulnerabilities and it is stated that if the country remained unable to manage the balance of payments properly, it could trigger a full-fledged crisis, where the foreign currency reserves would start depleting.
There is another risk to the external sector if the prices of POL products remained hovering around $84 per barrel, then the petroleum imports bill could touch $16 billion on a per annum basis. Pakistan’s economic growth continues to be vulnerable to a balance of payments crisis.
This is largely due to a high-income elasticity of demand for imports, creating a huge trade deficit and an unmanageable current account deficit. The increased dependency on imported energy and rise in the commodity prices globally has increased external account difficulties.
