The future of telecom in Pakistan destined to leap ahead


From KHALID BUTT, Lahore
May 30 - June 05, 2005



The National Tax Number (NTN) is likely to be made mandatory for the purchase of real estate from the fiscal year 2005-06.

Informed sources told PAGE that the federal government was actively considering the NTN condition for the purchase of property with the objective to expand tax-base, identify the source of income of the buyers and to discourage involvement of black-money in this business, a senior federal government official said. A number of sweeping changes are underway, in this regard.

In the current budget, the government made compulsory the NTN condition for the purchase of new car, which proved successful and same strategy might be adopted for the real estate business from 2005-06. The government was also weighing different options regarding the imposition of federal tax on the sale and purchase of real estate which include the levy of sales tax, or capital gain tax on stock transactions.

The official also disclosed that a vast majority of buyers of property had not been providing their National Identity Cards to the Registrar Office in Lahore, dealing with the sale and purchase record of property.

He said that the CBR had obtained a complete record of the buyers and sellers of the real estate in Lahore and the scrutiny of the record that led to the disclosure that a vast majority of the buyers, especially in big cases, had not attached the copies of ID cards, leaving no clue to their proper identification, etc. He, however, said that the sellers had attached their ID cards with the sale deeds.

This scribe further learnt that the CBR had written a letter to the Chief Secretary Punjab a few days back, raising the issue of non-attachment of new ID cards by the buyers of the property.

The CBR has requested the Chief Secretary of the Punjab to ensure that in future the ID cards of the buyers are attached with the sale deeds so that the tax authorities could find a clue to the buyers.



Meanwhile, a senior official of the finance ministry also told this correspondent that the federal government was considering incorporating an amendment in the existing Income Tax Ordinance that would enable the tax authorities to seek identification and record of the buyers of property in the overseas schemes, including Dubai.

He said that under the existing IT law, the CBR had not been empowered to obtain such information from the private business concerns, engaged in the booking of commercial and residential property in overseas schemes.

He pointed out that several Pakistanis have invested over two billion rupees in real estate schemes in Dubai, but the tax authorities are unable to collect the information and record about the local investors mainly because of non-provision in the existing IT law.

He said that the tax measures to be introduced for real estate business in coming budget might decelerate the business, but it would gradually stabilize. It is worth noting that the property business is facing a serious slump due to crash of stock market and reports of the levy of tax in the coming budget. However, the fact remains that the much rooming of unscrupulous elements in the real estate business have enhanced the risk element in the real estate business which calls for some regulations to carry the business which most of the time involves the life time earnings of the low income group. The registration of the real estate or property dealers with a bank security will be highly commendable for an effective check of forgery and fraud in the transaction of the property.

Actually, the introduction of NTN in the real estate transactions is a part of the drive launched by the CBR for expanding tax base in the country.

Though the collection performance looks quite impressive, with net receipts totaling Rs403 billion which exceeded the target for the first three quarters of the financial year, yet most of the revenue was collected from the existing tax payers. The achievement of the cumulative July-March 2005 tax target owes in large part to the unusually high direct tax receipt during first half of the financial year. The large variance between the projected receipts and actual collections is, however, disturbing, raising concerns that achieving the annual target may prove stiff.

The below target tax receipts in the face of higher GDP growth means that the tax-to-GDP ratio is likely to drop for a second successive year. This is disturbing, given that this ratio is already once of the lowest in the region, claims the State Bank of Pakistan.

In the recent years, the government has made significant gains in containing expenditure growth, while simultaneously increasing developmental spending. However, the latter needs to accelerate if economic growth is to be maintained and poverty rates are to decline. The required increase in developmental spending will not be possible unless the tax to GDP ratio was stabilized at significantly higher levels.

The importance of broadening the tax base and improving buoyancy is also underlined by the high dependence of overall government revenues on potentially unsustainable or uncertain sources. For example substantial contribution to non-tax revenue is from payments from logistic support. The disbursement is not likely to continue in the long term. The oil development surcharge has also emerged in recent years as a major source of revenue. However, current high international prices and the impact of these on domestic economy indicate that this levy may be insupportable at current levels.