Tax of billions evaded, black money whitened every year

ISLAMABAD: In a major scam tax evasion of hundreds of billions of rupees and whitening of black money worth trillions of rupees take place every year with the government authorities facilitating the extremely undervalued sales and purchases of thousands of residential and commercial properties throughout the country every day.

While Pakistan direly needs to broaden its tax base by making the rich pay the tax, the federal and provincial authorities concerned are graciously allowing the sale and purchase of properties, both commercial and residential, at extremely undervalued rates to the benefit of tax evaders.

This is generally accepted practice of all the provincial registration offices as well as the CDA, DHA and other housing societies. Most of these sales and purchases are based on official rates, also known as DC (Deputy Commissioner) rates, which are far lower than the actual market prices of these properties.

Senior finance ministry sources said during the last two years’ budgetary preparation exercise, the FBR had proposed the enactment of “Pre-emption Law” to check this huge corruption of tax evasion and whitening of black money.

“The powerful lobbies did not let it happen,” a source said, adding that the FBR as well as some key mandarins in the finance ministry continue to support the enactment of “Pre-emption Law” which if materialises will serve the greater national interest.

This shady affair deprives the government of actual CVT and withholding tax, which if calculated on original price, goes into hundreds of billions of rupees every year.

Such dealings, which have the blessings of the federal and provincial authorities, give a great opportunity to tax evaders and black money holders to whiten their money by investing more but showing much less on real estate.

The News inquiries from authorities concerned reveal that in an ordinary sale of a house in Islamabad, the government is deprived of over Rs1 million tax. For example, a CDA source said generally the declared worth of Rs100 million house in Islamabad sector is around Rs30 million.

The government imposes 2 percent CVT and 2 percent withholding tax (on non filers) or one per cent withholding tax (on tax payers). It means instead of paying Rs4 million as CVT-withholding tax, a little over Rs1 million is paid because of undervalued declaration.

In the case of commercial properties, the tax evasion goes really high.FBR spokesman Shahid Husain Asad when approached confirmed that taxes worth hundreds of billions of rupees are evaded and black money worth trillions of rupees is whitened every year because of sale and purchase of properties on the basis of highly undervalued “DC rates”.

The FBR spokesman said in Sector F-6 and F-7 of Islamabad, the DC rate of one kanal plot is merely Rs10 million whereas the market price is around Rs100 million. In such cases of sales and purchases more than Rs3 million tax is evaded.

Shahid informed that during the last couple of years back the FBR had moved the case for making a law to discourage sales and purchases on undervalue rates but the draft law did not get the approval.

He said the draft law was aimed at authorising the government to purchase any undervalue property by paying 25% extra of the declared rates.

The FBR spokesman said the Bureau had also approached the provincial governments to revise the DC rates in order to bring them parallel or close to the market rates so that the massive tax evasion could be stopped. However, he lamented that the provinces are not keen to cooperate in this critically important task.

According to FBR sources, during Musharraf’s tenure the finance ministry had taken the imitative to check this practice and constituted a committee to devise the strategy. However, the report of the committee was shelved and nothing was done to check tax evasion of hundreds of billions of rupees.

These sources said the FBR only recently initiated an inquiry against one of its Karachi-based senior official, who had declared to have purchased a house in DHA Karachi for Rs4.5 million whereas in actual it was purchased for Rs50 million.

The DC rates whether in Karachi, Lahore, Islamabad, Peshawar or in any other part of the country are 10-20 per cent of the actual value of the property. It helps the holders of black money and tax evaders to legalize their millions and billions with the complete support of government authorities.

It is also revealed that generally the buyers, who mostly benefit from DC rates to evade tax and whiten their black money, sign two sets of agreements with the seller.

One of these agreements carries the actual price whereas the other agreement shows the sale of property at the undervalued rate. The first agreement is meant for the two parties to avoid any fraud whereas the second agreement is shown to the registration authorities for transfer of property on undervalued rate.

The CDA, Employees Housing Foundation and Islamabad Administrative on an average process almost 140 cases of commercial and residential properties sale/purchase every day. By including the number of housing societies, the cases of properties sale purchase per day in Islamabad goes beyond 200.

This number in cities like Karachi, Lahore, Rawalpindi, Gujranwala, Multan etc goes really high. Although no exact number of every day sale/purchase of countrywide properties is available, it is said to be in thousands which involves billions of rupees. It is said that a few buyers in hundreds of cases of properties’ transfer, actual amount paid for the purchase is declared. “The undervalued transfer of properties has become a norm in our society and it involves even the influential from politics, law, justice and civil and military bureaucracy,” a FBR source said, adding that the influential make it impossible for the revenue collecting authority to correct this wrong that cost the nation so heavily.

According to the data collected by The News, the DC rate of commercial property in Saddar Road and Saddar Bazaar of Rawalpindi is Rs2.5m and Rs2.2m per Marla respectively. However, the market price is said to be five to ten time higher than the DC rate.

Similarly, the DC rates of Murree Road commercial property are around Rs2m per Marla, which again is extremely undervalued. The official rates of properties in other parts of Rawalpindi’s commercial areas including Jinnah Road, Iqbal Road, Liaquat Road etc are also five to ten times lower than the market value.

The DC rate of Islamabad shows the maximum value of one kanal residential plot even less than Rs1 million whereas in actual price it is eight to ten times higher.

In Lahore, the DC rates in Gulberg-I (II, III, IV, V) for residential property is Rs 20,000 per Marla whereas the market Rate is Rs2-2.5m. In the case of commercial property, the DC rate is Rs1.5 million as against the market rate of Rs5m to Rs10m.

DC rates in case of commercial property in Anarkali New is Rs2.1m as against Rs5m to Rs10m of the market rates. Mall Road commercial property DC rate is Rs2.9m as against Rs5m to Rs12m market price of per Marla land.Lower Mall residential DC rate is Rs550,000 as against market rate of Rs1.5 to Rs2m.

In Karachi, the official value of residential plot in phase 8 of DHA is Rs1650 per yard whereas the actual value is Rs80,000 per yard. The DHA value for commercial plot in this area on Khayaban-Shaheen is Rs2750 per yard while the actual value is Rs900000 per yard. In other areas of DHA i. e. Phase 1 to 7, the DHA value is as per the chart, slightly higher but the actual price is similar to phase 8.

In other areas of Karachi, the collector’s value is higher than DHA but the actual value is similar to DHA actual prices. Collector’s value (DC rate) in commercial areas like Tariq Road, Shaheed-e-Millat road and adjoining areas is Rs34000 per square yard and the actual price is Rs300000.

Sources dealing with the property business in Karachi estimate that the black money investment in DHA Karachi alone is Rs 300 billion per year. It is estimated that more than two trillion rupees of black money is invested in properties across Pakistan every year.

“What is stopping FBR, NAB, and FIA from going after these tax evaders? Can the National Action Plan take immediate and urgent step to stop this evasion,” a source raised the question, suggesting that the FBR should check all property transactions of over Rs10 million actual prices over last ten years.

“Properties of non filers be attached and auctioned. Filers paying low taxes and buying expensive properties be penalized.