ISLAMABAD, February 16, 2024 — The Federal Tax Ombudsman (FTO) has released a critical report exposing systemic flaws in the Federal Board of Revenue’s (FBR) methodology for determining the fair market value of immovable properties across Pakistan. The report, titled “Own Motion Case No: 0033/2023 – Examining Anomalies in Immovable Property Valuation,” identifies the absence of standardized procedures as a core weakness affecting property taxation and fairness.
Under Section 68(4) of the Income Tax Ordinance, 2001, the FBR is authorized to establish fair market values for real estate assets. Currently, this function is carried out under the Pakistan Raises Revenue Project (PRRP) — a World Bank-backed initiative aiming to unify property valuation across different jurisdictions. However, the FTO’s independent investigation, initiated under Section 9(1) of the FTO Ordinance, 2000, highlights major inconsistencies in this valuation process.
Inconsistencies in Valuation Methods
The report outlines serious discrepancies between Deputy Commissioner (DC) rates, FBR-issued valuation tables (via SROs), and actual market values, particularly in the Islamabad and Rawalpindi regions. The FTO’s Research and Analysis Wing found that the absence of a Standard Operating Procedure (SOP) has resulted in varied and often contradictory valuation outcomes.
Key Findings and Recommendations
One of the most significant findings is the lack of uniform valuation methodology. The report recommends that the FBR adopt internationally recognized valuation approaches, including:
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Cost-Based Approach
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Sales Comparison Approach
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Income Capitalization Approach
These methods are consistent with the International Valuation Standards (IVS) issued by the International Valuation Standards Council (IVSC), which emphasize integrity, objectivity, and methodological rigor.
The report also underscores the need for:
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Selection of an appropriate value basis
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Disclosure of key assumptions and conditions
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Adoption of suitable and transparent valuation models
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Engagement of qualified, independent valuers
Call for Institutional Reform
To ensure credibility, consistency, and transparency, the FTO has proposed the following structural and procedural reforms:
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Activate the Directorate General of Immovable Property, established under Section 230F of the Income Tax Ordinance.
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Formulate a clear SOP for immovable property valuation, to be issued by the Member (Policy) FBR.
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Establish a Standing Anomaly Committee to address stakeholder grievances and resolve valuation disputes.
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Hire and accredit skilled, experienced valuers familiar with international best practices and local market conditions.
Implications for Taxpayers and Real Estate Sector
The FTO’s report has far-reaching implications for property owners, real estate investors, and tax authorities. The current lack of standardization has led to distorted valuations, affecting tax liabilities, investment decisions, and legal certainty. The recommendations laid out in the report aim to bring uniformity, fairness, and credibility to Pakistan’s property valuation system — a vital step toward strengthening property taxation, broadening the tax base, and restoring taxpayer confidence.
Conclusion
The Federal Tax Ombudsman’s latest findings bring much-needed scrutiny to Pakistan’s fragmented property valuation system. By aligning FBR procedures with international standards and implementing structural reforms, the government can move toward a more equitable and transparent real estate tax regime.
