Property Taxes in Pakistan

UPDATE (Feb. 16, 2021): Tax Laws (Amendment) Ordinance 2021 has been promulgated by President Dr. Arif Alvi to aid non-resident Pakistanis (NRPs) wishing to open non-resident Pakistani Rupee Value Accounts (NRVAs). The ordinance includes:

• An indefinite extension of 4 percent super tax on banks beyond tax year 2021
• Imposition of withholding tax (Rs 50,000-Rs 200,000) on different engine capacity vehicles for persons selling locally manufactured vehicles within 90 days of delivery
• Tax exemptions for electric vehicles and locally manufactured mobile devices

• Directive for a person responsible for attesting, registering, or recording the transfer of any immovable property to collect advance tax at a rate of one percent from the seller or transferor. For buyers or transferees who are NRPs holding a Pakistan Origin Card (POC) or a National Identity Card for Overseas Pakistanis (NICOP) or a Computerized National ID Card acquiring immovable property through a Foreign Currency Value Account (FCVA) or NRVA maintained with authorized banks in Pakistan, the tax shall be the final tax for such buyers.

  

UPDATE (Sept. 8, 2020): An amendment in the Income Tax Ordinance 2002 via the Finance Act 2020 has reduced the holding period and tax rate on Capital Gains Tax (CGT) on the disposal of immovable property. The details are as follows:

• The holding period for CGT has been reduced to 4 years
• The percentages of taxable capital gain have been rationalized with reference to the holding period:
  • 100% of capital gains taxed if holding period is less than 1 year
  • 75% of capital gains taxed if holding period exceeds 1 year but is less than 2 years
  • 50% of capital gains taxed if holding period exceeds 2 years but not 3 years
  • 25% of capital gains taxed if holding period exceeds 3 years but not 4 years
  • No CGT taxed after 4 years of holding period

• The rate of CGT on annual gains through disposal of immovable property has also been reduced and can be broken down as follows:

  Annual Gains in PKR	Rate of Tax Before Finance Act 2020	Rate of Tax After Finance Act 2020
  Gains < 5 million	5%	2.5%
  Gains 5-10 million	10%	5%
  Gains 10-15 million	15%	7.5%
  Gains > 15 million	20%	10%

UPDATE (Apr 21, 2020): In response to COVID-19, the government of Pakistan has introduced incentives for the construction industry, including exemptions from Capital Gains Tax (CGT) for families selling their houses during this period. Additionally, sales tax reductions are being implemented in collaboration with provincial governments.

Plato, the Greek philosopher, once said, "When there is an income tax, the just man will pay more and the unjust less on the same amount of income." Plato's observation remains relevant today, as people often seek ways to evade taxes. For example, during property transactions, buyers and sellers may agree to understate the property's value on the sales deed to reduce tax liabilities. Withholding tax is borne by the buyer, while Capital Gains Tax is the responsibility of the seller. Let's delve into the various types of property taxes in Pakistan and their implications.

Different Types of Property Taxes in Pakistan

Capital Gains Tax (CGT) Capital Value Tax (CVT) Stamp Duty Withholding Tax or Advance Tax

Paying property taxes may not be enjoyable, but it's crucial, much like a trip to the dentist. Attempting to evade these taxes can lead to serious trouble with the Federal Board of Revenue (FBR). The FBR closely monitors income, investments, and real estate transactions. Any inconsistencies may result in notices, penalty fees, or asset freezes.

Good news for overseas Pakistanis seeking to invest in Pakistan's real estate market: the government has relaxed regulations for non-filers of income tax returns. Overseas Pakistanis can now invest more easily in the country's real estate sector.

Widening Gap: The Federal Board of Revenue (FBR) has recognized a significant gap between "deputy commissioner (DC) rates" and actual market prices of properties. This disparity has facilitated the circulation of undocumented money in the market, leading to tax evasion. To address this issue, the government and FBR have revised property valuation tables, abolishing DC rates. The new valuation rates aim to accurately determine property values and bring previously untaxed transactions into the tax net.

Bringing Provinces into the Tax Net – A Taxing Process: To counter tax evasion, the government and FBR have revised property valuation tables, eliminating DC rates. The new valuation rates, as per FBR Valuation Tables 2019, have increased property valuations across 20 major cities in Pakistan. While this may temporarily reduce trading activity and property prices, it aims to increase tax compliance. The increased tax revenue can benefit government initiatives and services.

Property Tax in Pakistan: Property tax in Pakistan is a provincial tax levied on the annual rental value of properties. Rates vary by province and can be either a flat rate or a percentage of the annual rental value. The rental value is an assessed value by the government, indicating how much rent could potentially be generated if the property were rented out. Rates differ depending on whether the property is rented or self-occupied.

For example, in Punjab, there's a flat 5% annual rental value tax, while in Sindh, the tax is 25% of the annual rental value, regardless of whether the property is rented out.

Types of Tax on Sale of Property in Pakistan: When selling property in Pakistan, Capital Gains Tax (CGT) is applicable on the profit gained. CGT rates and regulations vary depending on the holding period and the amount of gain.

Understanding and complying with property tax regulations is essential for all property owners in Pakistan. It ensures tax compliance and contributes to the country's revenue, ultimately benefiting society as a whole.

Let us now understand what is Capital Gains Tax on property in Pakistan 2018-2019? Capital Gains Tax (CGT) is a federal tax to be paid by the seller. When the seller makes profits on selling property (capital asset), it is the profit (capital gain) which is taxed, hence the name. According to the Finance Act 2017, CGT is levied only when the property is sold within three years of its purchase. The rate of taxation is 10% for the first year, 7.5% if sold during second year and 5% if sold during the third year. These gains are to be calculated according to the fair market value, based on FBR’s valuation table. Any property held for more than three years will not make the seller liable for payment of CGT. TYPES OF TAXES ON PROPERTY PURCHASE IN PAKISTAN When a person decides to buy property in Pakistan, they want to know everything: do they have enough resources? Do they need to apply for a home loan? Are there certain steps to follow when applying for a home loan? Should they buy properties in Karachi? Or should they invest in plots in Lahore? How much tax is levied on property purchase? They want to weigh all their options before making this big decision. Let us discuss property purchase tax in Pakistan in greater detail. Capital Value Tax (CVT) & Stamp Duty Those interested in buying property, keep in mind that they have to pay quite a few taxes before becoming owners of the property. Capital Value Tax (CVT) is a provincial tax and is paid by the buyer at the time of buying property. As the name suggests, it is payable on the capital value of an acquired asset. The Capital Value Tax or CVT is levied at the rate of 2% of the recorded value according to Finance Act, 2006. Property that is transferred as a gift, an exchange or relinquishing the rights on a property all come under Capital Value Tax. However, transfer of property between parents, spouse or any of your blood relatives either as a gift or through inheritance have been excluded. In cases where it is a gift or exchange, or where property value is not mentioned in the transaction, the value of the property is calculated according to the values determined through the valuation tables. According to Budget 2018-19, federal government had recommended the abolition of DC rates. Recommendations had also been made to reduce the CVT and Stamp Duty to a total of 1%. Neither of these recommendations have been implemented by the provinces so far. So, currently the total of CVT and Stamp Duty for urban property still stands at a total of 5% (2% CVT and 3% Stamp Duty). Stamp Duty is basically a tax paid on the legal document at the time of purchasing property. Under the Stamp Act 1899, Stamp Duty is levied at 3% of the DC rates of the property. Withholding Tax (WHT) to be paid by both buyers and sellers In addition to CVT and Stamp Duty, Withholding Tax (WHT) is of utmost importance. It is a federal tax payable by both buyers and sellers on a property deal. Few points need to be taken into consideration: Homebuyers have to pay 2% if they file an income tax return and 4% if they do not file tax returns. People who are buying property have to pay WHT, only if the property is valued more than PKR 4 million Sellers have to pay 1% if they are tax filers, or 2% if they are non-filers Withholding Tax is to be paid at the time of property deal, when you are registering the sales deed WHT is known to be an ‘advance tax’, which means it acts as an advance on other taxes and, hence can be adjusted into homebuyer’s tax liabilities and also against the Capital Gains Tax of the seller. Under the Budget 2018-19, FBR rates were to be abolished, sellers would no longer have to pay Advance Tax and rates would change for buyers as well. However, to ensure that the declared values of properties are fair, the government has formed the Directorate of Immovable Property (DGIP). The plan to establish it was declared in Finance Act 2018. It will be authorized to conduct geo-mapping of plots, apartments and all kinds of housing schemes and projects. It will also determine the valuation of properties. It will also track those areas of real estate where tax evasion is a possibility – especially while collecting Withholding Taxes. These are some of the most common property taxes in Pakistan. Through the property tax calculator you can also calculate property taxes for 2018-2019 for Sindh and Punjab from the official websites of Excise Taxation and Narcotics Control Department, Government of Sindh and Government of Punjab, respectively. These are a few updates on taxes on property purchase and also related to taxes on sale of property in Pakistan. For more updates, stay tuned to the best property blog in Pakistan.

Capital Gains Tax (CGT) is a federal tax imposed on sellers when they make profits from selling property (capital asset). According to the Finance Act 2017, CGT applies only when the property is sold within three years of its purchase. The tax rates are as follows:

• 10% for sales within the first year
• 7.5% for sales within the second year
• 5% for sales within the third year

These gains are calculated based on the fair market value, determined by the Federal Board of Revenue's (FBR) valuation table. Properties held for more than three years are not subject to CGT.

Types of Taxes on Property Purchase in Pakistan

Capital Value Tax (CVT) & Stamp Duty: Capital Value Tax (CVT) is a provincial tax paid by the buyer at the time of purchasing property. It is levied at a rate of 2% of the recorded value, as per the Finance Act, 2006. Stamp Duty, paid on legal documents during property purchase, is 3% of the DC rates of the property, according to the Stamp Act 1899.

Withholding Tax (WHT): Withholding Tax (WHT) is a federal tax payable by both buyers and sellers. Homebuyers pay 2% if they file income tax returns and 4% if they don't. WHT is applicable when the property value exceeds PKR 4 million. Sellers pay 1% if they are tax filers and 2% if they are non-filers. This tax is paid at the time of registering the sales deed and acts as an advance tax, which can be adjusted against other tax liabilities.

The establishment of the Directorate of Immovable Property (DGIP), as announced in the Finance Act 2018, aims to ensure fair property valuation and track potential tax evasion in real estate transactions.

These are the common property taxes in Pakistan for the year 2018-2019. You can calculate property taxes for Sindh and Punjab using the official websites of the Excise Taxation and Narcotics Control Department, Government of Sindh, and Government of Punjab, respectively. Stay updated on property tax regulations through reliable sources.