Pakistan Tax

Property Taxes in Pakistan

Property Taxes in Pakistan

In Pakistan, property tax is levied on the annual rental value of properties based on the Urban Immovable Property Tax Acts of the respective provinces. Tax rates vary from province to province. It may be a flat rate or a percentage of the annual rent. Rent does not necessarily mean the property must be rented. The government simply gives an estimate of how much rent would be generated if the building were rented out. In each province, the tax rate varies according to whether the property is rented out or self-occupied. There is a 5% tax on the rental value of a house in Punjab, crafted by the Department of Excise, Taxation, and Narcotics Control. Based on the type of property, locality, and whether it is rented or self-occupied, the annual rent value of a property is determined. It does not matter whether the property is rented or not, according to the Excise, Taxation & Narcotics Department Sindh. Taxes are levied at a rate of 25% of the annual rental value of the property.

Types of Tax on Sale of Property in Pakistan

Pakistan imposes a Capital Gains Tax on the profits that are gained on the sale of a property. Let’s delve into the details.

Capital Gains Tax (CGT)

Capital Gains Tax (CGT) is a federal tax that must be paid by the seller. Capital gains are taxed when the seller makes profits from the sale of a capital asset (capital asset). The Finance Act of 2017 states that CGT is imposed only on properties that are sold within three years of their purchase. Tax rates for first-year sales are 10%, 7.5% for second-year sales, and 5% for third-year sales. Based on FBR’s valuation table, these gains should be calculated based on the fair market value. For properties held for over three years, the seller will not be liable for CGT.

Types of Taxes on Property Purchase in Pakistan

If someone wants to buy property in Pakistan, they want to know everything: are they financially stable? Are they required to take out a loan? What are the steps to apply for a home loan? Can they purchase properties in Karachi? Is Lahore the best place to invest? What is the property tax rate? This is a big decision that they want to consider carefully. Let’s look at Pakistan’s property purchase tax in more detail.

Capital Value Tax (CVT) & Stamp Duty

If you plan on buying property, be aware that you will have to pay quite a few taxes before becoming the owner of the property. A capital value tax (CVT) is a provincial tax that is paid by the buyer at the time of purchase. Capital gains taxes are paid on assets acquired. According to the Finance Act, 2006, Capital Value Tax is levied at a rate of 2% of the recorded value of the property.

Capital Gains Tax applies to any property transferred as a gift, exchange, or by relinquishing the rights to the property. However, transferring property between parents, spouses, or blood relatives has been prohibited, whether through gifting or inheritance. Gifts or exchanges, or situations where the value of the property is not specified in the transaction, are valued based on the values determined by the valuation tables. The federal government recommended abolishing DC rates in Budget 2018-19. There was also a recommendation to reduce CVT and Stamp Duty to 1%. The provinces have not yet implemented either. Therefore, the total amount of CVT and Stamp Duty for urban property still stands at 5% (2% CVT and 3% Stamp Duty).

In essence, stamp duty is a tax paid on legal documents at the time of purchase. The Stamp Act of 1899 imposes Stamp Duty at 3% of the DC rates of the property.

Withholding tax (WHT) must be paid both by buyers and sellers. Withholding Tax (WHT), along with CVT and Stamp Duty, is of the utmost importance. Both buyers and sellers must pay the federal tax on a property transaction. Here are a few things to keep in mind:

  • The tax rate for homebuyers is 2% if they file an income tax return and 4% if they do not.
  • A buyer of a property must pay WHT only if the property is worth more than PKR 4 million
  • Tax filers pay 1%, and non-filers pay 2%
  • When registering a property sale deed, you must pay withholding tax
  • WHT can be considered an ‘advance tax’, meaning it acts as an advance on other taxes and, so, can be deducted from the buyer’s tax liability or deducted from the seller’s capital gains tax.

Final Words

Under the 2018-19 budget, the FBR rates were to be abolished, the advance tax would no longer be levied on sellers, and rates would be changed for buyers as well. The Directorate of Immovable Property (DGIP) has been created by the government in order to ensure that property values are accurately reported. This was announced in the Finance Act of 2018. A geo-mapping service will be able to conduct mapping of plots, apartments, and all types of housing schemes and projects. Properties can also be valued using this service. It will also identify those areas of real estate where tax evasion is possible – especially when collecting withholding taxes.