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July 4, 2020

Sprawling farmhouse, large residence owners escape luxury tax

Top Story

July 4, 2020

ISLAMABAD: The affluent owners of the sprawling farmhouses and luxury dwellings of the Islamabad Capital Territory (ICT), valuing billions of rupees, have escaped the tax in the new federal budget.

“The taxes, proposed by the interior ministry on these residential houses, were withdrawn during the passage of the budget,” Federal Board of Revenue (FBR) spokesman and Inland Revenue Service Member Dr Hamid Ateeq Sarwar confirmed to The News to a question.

He said that when the budget was presented in the National Assembly, the interior ministry’s proposed tax was part of it, but it was taken back while inserting amendments to the finance bill during its approval.

The interior ministry was going to collect these taxes, if imposed, through its subsidiary departments.

There are a large number of farmhouses comprising various areas not only in the orchard scheme of the Capital Development Authority (CDA) but also in the private housing societies in the ICT.

There are also expansive farmhouses, which have been built on land purchased from private parties in the surroundings of the capital and which do not fall in any private housing scheme or the ICT approved plan.

The primary objective of the orchard scheme was to provide the federal capital the vegetables and fruits from these farmhouses, which is being hardly met as they are being mainly used for residential purposes. The price of such a farmhouse is extremely phenomenal. It can be afforded only by fabulously rich people.

According to the proposal, the rate of the tax was fixed Rs25/sq ft of the covered area per annum in case farmhouses was spread over four kanals, including the area under farming, having a covered space between 5,000 sq ft and 7,000 sq ft.

A farmhouse with the covered area between 7,001 sq ft and 10,000 sq ft was taxed at the rate of Rs40/sq ft of the covered area.

For a farmhouse with the covered space of more than 10,000 sq ft, the applicable rate of tax was fixed at Rs50/sq ft of the covered area.

For farmhouses, having no area under farming, and the covered space between 5,000 sq ft and 7,000 sq ft, the rate of annual tax was proposed to be Rs60/sq ft of the covered area.

For the covered area between 7001 sq ft and 10,000 sq ft it was proposed to be Rs70/sq ft. The luxury tax rate was proposed Rs80/sq ft for a farmhouse with covered space of over 10,000 sq ft.

The interior ministry had also recommended the tax on houses of two to four kanals with the covered area of more than 6,000 sq ft at the rate of Rs100,000 per kanal.

The rate was fixed Rs200,000 per kanal, if the luxury house has been constructed over five kanals or above with the covered area of over 8,000 sq ft. It was stated that these taxes will not apply to properties occupied by widows.

While deliberating on the budget proposals, the Senate Standing Committee on Finance, Revenue and Economic Affairs, chaired by Farooq H Naek, had rejected the luxury tax on farmhouses and houses bigger than two kanals.

It is reliably learnt that a number of well-connected farmhouse owners lobbied with the right quarters to do away with the proposed tax and succeeded. No reason was given while withdrawing the proposal.

The original proposal had been prepared by the ICT, which wanted to generate local taxes for its development activities. It had forwarded its recommendation to the interior ministry, which got it incorporated in the federal budget. However, at the end of the day, the proposal was withdrawn, and thus, well-off people were spared from the levy of the tax, which, even otherwise, was not very heavy.