ISLAMABAD, February 16, 2024 – The Federal Tax Ombudsman (FTO) of Pakistan has released a critical report exposing significant shortcomings in the Federal Board of Revenue’s (FBR) methodology for assessing the fair market value of immovable properties. Titled “Own Motion Case NO: 0033/2023: Examining Anomalies in Immovable Property Valuation,” the report identifies the absence of a standardized procedure within the FBR, a key issue in property taxation and valuation.

Under the Income Tax Ordinance’s Section 68(4), the FBR holds the authority to determine the fair market values of immovable properties, a process currently undertaken by tax functionaries as part of the Pakistan Raises Revenue Projects (PRRP), a reform initiative in collaboration with the World Bank. The goal is to establish consistent valuation rates for immovable properties across the country.

Triggered under Section 9(1) of the FTO Ordinance, 2000, the Own Motion investigation delved into the valuation mechanisms used by the FBR, including the analysis of Deputy Commissioner (DC) rates, FBR-issued valuation tables through SROs, and market research by the FTO’s research wing. This extensive review uncovered substantial inconsistencies and discrepancies in property valuations, particularly in the Rawalpindi/Islamabad region.

A key finding of the report was the absence of a written Standard Operating Procedure (SOP), leading to varied and often contradictory property valuations. The FTO underscored the importance of implementing three primary valuation approaches: Cost-based, Comparison, and Income Capitalization. However, the lack of an SOP has necessitated a recommendation for the FBR to align with the International Valuation Standards (IVS) established by the International Valuation Standards Council (IVSC).

IVS principles stress the importance of being principles-based and require valuers to maintain integrity, objectivity, impartiality, confidentiality, competence, and professionalism. Valuers are expected to possess necessary technical expertise, use recognized valuation standards, and adhere to all relevant requirements.

Moreover, the FTO’s report emphasizes the need for valuers to choose an appropriate value basis, disclose major assumptions and conditions, and apply a suitable valuation methodology to ensure credible results. Uniformity, consistency, and credibility are highlighted as essential characteristics of any property valuation method.

To address these issues, the FTO recommended several measures, including activating the ‘Directorate General of Immovable Property’ established under Section 230F, creating an SOP by the Member (Policy) FBR with appropriate valuation methods, forming a “standing anomaly committee” for addressing stakeholder concerns, and employing skilled and experienced valuers for transparent and accurate property assessments.

This report is a significant step towards refining Pakistan’s property valuation process, aiming to achieve fairness and uniformity in the assessment of fair market values of immovable properties.