Two months ago the government has unilaterally registered all tax returns-filing real estate dealers as Designated Non-Financial Business and Professions (DNFBPs) and directed them to provide full details of their clients and property transactions after completing customer due diligence. A four-page questionnaire containing 86 questions was also given to some 20,000 realtors registered in FBR and asked them to submit online within seven days.
It was done to meet the requirements of the Financial Action Task Force (FATF) and entailed with following salient features;
- Under SRO 924, all real estate agents are now required to provide details of client relationship and services and report transactions of high-risk clients, local and foreign politically exposed persons and high net worth individuals, including non-resident clients.
- They are also required to report types of payments for property transactions along with risk assessment of such clients and transactions and ensure risk mitigating controls.
- Realtors have also been asked to identify clients and report the number of transactions related to “high-risk countries or areas of concern or the border areas of Khyber Pakhtunkhwa and Balochistan as well as South Punjab” as to ‘what was the value of those transactions”.
- They are also required to report suspicious transactions and currency transactions relating to entities and individuals to the Financial Monitoring Unit on high-risk factor deals.
Business personalities from construction and housing sector believe that move of government is surely going to hit the real estate trading and activities under these FATF stipulations. They also criticize the timing and say it comes at a time when the prime minister’s construction package and related amnesty scheme remains in place until June 30 under which the government has promised that sources of income for investments would not be asked.
However, as Pakistan’ status in the FATF would have to be reviewed in the same month of June, and Pakistan has to made “serious progress” to do away with “serious deficiencies” in mechanism to plug terrorism financing, it is unlikely the questionnaire and SRO 924 would be reversed.
There are also other drawbacks of that decision, but how the government would take it up nobody knows.
Low Qualification of Realtors
The biggest challenge before the real estate firms and even builders that with limited qualification majority of their real estate agents and brokers neither understand the questionnaires properly nor fill them out. There are more than one million real estate dealers across the country, for them the compliance is a big issue.
Negative Impact on Market & Taxpayers
The impact of that move wouldn’t be prosperous for real estate activities and market situation at the moment, or may be keep it stayed for long time. But it is surely discourage those dealers who are filers and required to comply. The non-filers aren’t in the tax net, so can easily skip this compliance, which is injustice with filers. The policymakers of the country should widen the tax net, rather curb those taxpayers who cooperate.
Absence of Real Estate Regulatory Authority
It is an irony the government hasn’t established so far the Real Estate Regulatory Authority (RERA), in spite of presenting the bill in the parliament. The RERA not only can bring all the dealers and real estate agents in the registration net but also streamline the construction and real estate activities and infuse some confidence in dealers to cooperate with institutions.
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Editorial, Infocus