IT is impossible now for a middle class tax-payer to buy a house. A 500-square yard plot in Karachi’s Phase VIII of DHA, costs Rs70 million (equivalent to Rs140,000 per sq yd). On the other hand, the value fixed by the government is Rs1,980 per sq yd. The government receives only Rs49,500 as tax and stamp duty instead of Rs3.5 million if the tax is levied on the plot’s actual price. Thus, whenever a Phase-8 500-sq yd plot changes hands, the government loses Rs3.45 million.
Twenty such plots are transferred in this phase every day. Thus the government loses Rs20 billion every year. Since thousands of transactions take place daily in Karachi and the rest of the country, the annual loss to the exchequer is mind-boggling. This is due entirely to the flow of black money into the property market.
According to conservative estimates, the amount of black money involved in Phase 8 alone is around Rs 414 billion every year. Imagine the quantum of black money flowing into the entire real estate sector and the government’s revenue loss.
The only way to stop the flow of black money into the real estate sector is for property registrars to ascertain the true value of properties changing hands. This can be done by visiting several websites on the internet. Before registering the transfer of a plot or a house, the registrar should advertise in newspapers asking buyers to bid for the property being transferred. Only after this is done should the registrar allow the sale of the property to the highest bidder, and recover stamp duties and taxes on that value.
This practice is followed by the Customs Department which allows importers to bid for those consignments which are suspected to be under-invoiced (Section 25 of the Customs Act). The SECP after strenuous efforts has succeeded in driving out black money from the stock market. If such measures are implemented by the government in the property sector, the state will benefit.
Shakir Lakhani
Published in Dawn, May 3rd, 2017