Property valuations

The only way the government seems to have to try and convince citizens to pay their taxes is by offering them amnesty. The logic behind this is that, having been given immunity for their past tax dodging, people will declare their assets and pay their fair share in the future. This principle has now been extended to property too with the introduction of the Property Investment Regularisation Scheme. Under this scheme, property purchased before July 2016 will be legally protected if declared. Is there a chance      for this amnesty proposal to succeed where so many others before it have failed? Such proposals can only work if those who are avoiding taxes believe and fear that the government is serious about enforcing the law. In case of property, the tax dodgers tend to be wealthy and influential and the government has so far shown little appetite for going after such people. The end result then may be the same as before: a trivial number of people may declare their properties with most still not paying their fair share to the government.

In the case of property, there is an additional snag. The way people dodge property taxes is not by refusing to declare ownership of property but by the buyer and seller listing the official sale of the property at a fraction of its real value and then paying the remaining amount in cash through black money. Property builders and dealers know this, which is why their negotiations with the government over how property should be valued have reached a dead end. In the case of the three cities with the most property transactions – Karachi, Lahore and Islamabad – the gulf between the value the government thinks should be given to property and the far lower figure devised by the dealers is too vast to bridge. The best way for the government to deal with this would be by becoming serious about tackling the black economy but it has not done so in the case of income tax and it may be wishful thinking to believe that this will change now. Since property dealers have a vested interest in showing values which are as low as possible, the government should hire independent evaluators and have property tax paid according to their valuations rather than the official selling price. This, rather than yet another amnesty scheme, may be the best way to collect what is owed.