ICT devalues prime real estate by Rs4.5tr

ISLAMABAD: Just ahead of the upcoming budget, Islamabad Revenue Administration has whimsically devalued real estate by Rs 4.5 trillion by revising downward DC rates, which will facilitate massive tax evasion and undermine budgetary proposals for bringing real estate into the tax net.

The Islamabad Capital Administration (ICT) has massively revised downwards the valuation table of real estate in ICT. Some conservative estimates suggest it to have caused devaluation of around Rs 4.5 trillion just with one stroke of pen. This will result in tax evasion because the tax will be collected on the basis of valuation tables notified through DC rates in these respective areas. Furthermore, this downward revision of DC valuation rates might become a precedent for other provinces and cause massive losses to the national exchequer. The prime objective of having a “Valuation Table of Land” duly notified by FBR or the District Collector Islamabad Capital Territory (ICT), popularly called the “FBR table” or the “DC Table”, is to prevent tax evasion, enhance revenue generation, and ensure that immovable properties while being sold/ transferred are fairly evaluated, as close to market value as possible, to collect duties and taxes in line with the market value

The valuation table of land was adopted in Punjab almost three decades ago, and greatly streamlined through legislation/ rulemaking under the Stamp Act 1899, especially section 27-A, and the Punjab Stamp (Valuation Tables in the respect of Urban Land) Rules 1999, as amended in 2010, extending it to all immovable property in Punjab without differentiation of urban or rural. However, in the Islamabad Capital Territory, wherein the land is most expensive, this framework was never adopted till 2020. Amendments in Islamabad Zoning Regulation, 1992 and New CDA Byelaws allowing high-rise buildings, marques and educational Institutions in suburbs of Islamabad and along major roads has resulted in huge escalation in land and property prices in Zone, II, IV and V of ICT.

The land prices have skyrocketed particularly in villages situated along, GT Road in Zone II and V, and along major city arteries, like Islamabad Highway, Kuri Road, Park road, Lethrar road, Fatehjang Road, and Murree Road in and around Barakhau. The opening up of zone IV for housing has made more that 50,000 acres of land in zone IV available for housing and real estate development. Apart from population growth rate in ICT which is one of the highest in the country, many mega infrastructure development projects are coming up in and around ICT, Margalla Highway, Rawalpindi Islamabad Ring road, Western Corridor of CPEC. Thus, value of land in ICT suburbs is continuously on the rise. As this legal framework was being implemented in ICT, many stakeholders of property business got restive by introduction of the “Valuation Table”. It was through the Finance Act 2019 (Act No V of 2019), passed by the legislature on 30th June 2019, that the Stamp Act, 1899 (Act II of 1899) as in force in the Islamabad Capital Territory was amended. The Federal Board of Revenue also vide SRO No 834 (I)/2019, dated 23rd July, 2019 issued a valuation table for immovable properties in different sectors and approved housing societies/colonies of Islamabad. For localities, areas and revenue estates not covered by the above-mentioned SRO of the FBR, District Collector Islamabad was empowered to notify an evaluation table for areas, under the “Rural Areas” of ICT, on 15, Jan 2020. This was twice revised by Commissioner/DC Islamabad, hugely scaling down the rates notified in 15th January, 2020 notification which was now issued for second time on April 29, 2021.

This scaling down has had huge negative impact on revenue collection in ICT. The revenue administration of ICT for value determination of land, is still using the archaic classification of land like Banjer, Ghairmumkin, Lapra, and Miara, which is irrelevant. Similarly, if land is located along GT Road, or any other major arterial road, even if it is Shamilat it will have immense value. The guiding principle will have to be that value of land in the Islamabad Capital Territory, cannot be linked to the agricultural productivity of land, or classification of land. The value has to be informed by its real estate value, potentiality and location under the ICT Zoning Regulation, 1992 and with reference to proximity to the major roads, and most importantly “Land Use” as permitted by different regulations of Capital Development Authority, particularly Islamabad Residential Sectors Zoning (Building Control) Regulation, 2020. The argument of the “Rural Character” of land in ICT is also not tenable as Islamabad is now governed by the Islamabad Capital Territory Local Government Act, 2015, which has established a Metropolitan Corporation of Islamabad abolishing the differentiation of urban/rural, making whole of ICT a metropolitan area. The recent changes in DC Evaluation Table in ICT will open flood gate of tax evasion as the properties rates have been reduced without any empirical basis, and land value has been whimsically reduced many times below the market value, only to appease pressure groups and properties mafias. The DC tables have been reduced drastically on the pretext that matter was referred by House Committee on Interior, or instructions by Islamabad High Court. Whereas a perusal of the record revealed that IHC had only instructed to hear the petitioners as per law. In the light of facts and byelaws, it is proposed in the budget for 2021-22, that all areas in the ICT be evaluated by FBR. But the review of FBR notification shows many prime real estate areas have been excluded from the notification and left to ICT administration, leading to huge revenue losses and tax evasion. The evaluation of these villages along major roads mentioned in CDA bylaws needs to be taken over by FBR. The average value of land in such areas is Rs 50 million to 100 million per kanal. Whereas ICT administration has in some cases devalued them at 2-3 million per kanal. This is just one glimpse of the scale of tax evasion and the potential which needs to be tapped for revenue generation.