Blog

Islamabad is cracking down on the use of black money in real estate dealings. Reports confirmed that the National Assembly Standing Committee on Finance and Revenue supported the Federal Board of Revenue (FBR) in this endeavour.

Authorities have formed a sub-committee to discuss the proposed tax amendment bill with all the stakeholders. The meeting between the committee and the FBR was chaired by MNA Naveed Qamar, who reviewed the bill. He formed the sub-committee to ensure the resolution of any outstanding issues between the FBR and relevant stakeholders.

The sub-committee will get the Revenue division to work with the Association of Builders and Developers (ABAD) to iron out a timeline for the application of the bill. According to reports, officials on the committee will submit their report within ten days to pinpoint all of the things that might affect the real estate market.

State Minister for Finance and Revenue Ali Pervaiz Malik told the committee that the proposed bill would place restrictions on non-filers and on activities such as buying vehicles and properties or parking funds in the Pakistan Stock Exchange (PSX).

The PSX declined by 600 points on Tuesday, which analysts are claiming might be the result of panic selling by non-filers ahead of the passing of the bill.

Ali Pervaiz told the committee that this would strengthen the FBR as it would increase tax compliance because of the bill’s passage. This is because a larger number of businesses operating in the grey market will register themselves and join the tax net.

The committee was reportedly told that ‘half of Pakistan’s’ run on black money. This is especially true for the real estate sector, which remains inflated because of corrupt officials and business owners using it to wash their money. As per reports, the FBR and tax officials have now been authorised to hire 1600 auditors to ensure that non-filers comply with tax laws.

FBR chairman Rashid Mahmood Langrial instructed the committee that authorities will now target high-income individuals first in an attempt to crack down on tax evasion. He mentioned that businesses refuse to register under the sales tax regime in order which is proved by the fact that a measly 42000 people have filed their sales tax returns.

The new laws, however will authorise FBR officials to block transactions involving tax evasion and black money. According to the FBR chairman, non-filers will also not be able to purchase any property valued at more than 10 million rupees.

Islamabad claims that K-electric owes over 225 billion rupees to the national exchequer, with approximately 83 percent of this amount comprising a markup on principle liability.

K-electric faces a staggering 186.5 billion rupees in markup fees, over their liability of just 38.8 billion rupees. However, K-electric also claims additional receivables from the government.

Currently, both entities are engaging in talks to draw up a plan for the direction and magnitude of the repayment amount. Resolving the repayment matter via negotiations concerns the areas that K-electric serves. If the talks require K-electric to pay the extortionate amount, the company’s cash flows could get strained.

Reports indicate that loss-related inefficiencies in the power sector deteriorated by a whopping 35 percent. Coupling this with K-electric’s expected repayments, players in the energy sector could try to increase the price of electricity. This spells bad news for businesses as electricity prices are already sky-high because of the 155 percent rise in tariffs over the past three years.

In its monthly report, the power division revealed that circular debt in the power sector dropped by 11 percent in November 2024 compared to the same period in 2023. The new circular debt stands at 2.381 trillion rupees making it more manageable for Islamabad compared to the old value of 2.678 trillion rupees.

Payables to fuel suppliers, power producers and debt parked in PowerHolding Ltd fell significantly as per reports. The fall in debt stems from the inflated quarterly tariff and fuel price adjustments, which allowed for an ‘over-collection’. Furthermore, various adjustments collected an additional 234 billion rupees due to prior year recoveries.

According to the power division’s report, K-electric’s owes a total of 59 billion rupees to the national exchequer. Accounting for markups, the power division claimed 225 billion rupees in receivables from the company.

The report further elaborated that payables to power producers dropped by approximately 12 percent from 1.8 billion rupees in November 2023 to 1.6 trillion rupees in November 2024. This drop indicates that the power sector has reduced its debts compared to the past year, showing Islamabad’s commitment to improving the financial health of the power sector.

However, the debt report has revealed that inefficiencies faced by power distributors (Discos) were responsible for a staggering loss of 94 billion rupees during the first month of FY 25. If discos continue to operate at such losses, the next debt report might witness an increase in circular debt instead.