A Guide on Government Taxes on Real Estate Industry Pakistan

Posted on 2019/03/07

Real Estate Market is one of the major contributions in Pakistan’s economic growth and enhancement of revenue with huge overseas and local financial transactions; Providing the employment, poverty reduction and significant contribution in GDP of Pakistan. Real estate market has been considered to be the remunerative area of investment for the investors for getting ROI of more than 100% within less time.

Four years ago in 2016, Government imposed taxes (Property tax, Capital value tax, Stamp duty, Withholding tax) on the real estate that affected real estate market badly. The stakeholders and property buyers/sellers requested the government to reduce the tax rates. But these tax rates haven’t been reduced by the government resulting in the loss of the Real estate market. Property taxes are imposed on both commercial and residential areas by the provincial governments of Pakistan.

The Latest Tax, Duties, and Fees in Real Estate Market

Property Tax

As per the provincial acts, the property taxes are levied on the yearly value of buildings and land. 5% of the annual value is levied on the property on yearly basis. The tax rate varies from province to province. The rental value does not imply on the rented out property.

Now, According to the latest valuation table 2019 on official Excise website, in Punjab, the yearly rental value is higher if the property is rented out. Else, 5% of the yearly rental value will be levied as a tax. As the same, Sindh Excise and taxation reported that whether the property is rented out or not, the tax will be levied at a rate of 25% of the yearly rental value of the property.

In Feb 2019, FBR revises land valuations upwards for 20 major cities. The average increase is 20%, but a sharp increase has been seen in the taxable rates for some areas. These rates will be applicable by Feb 1, 2019, through which the FBR will calculate withholding and capital gains. Lahore is on the top of the property re-evaluation drive, where 1,234 areas from Lahore have been re-evaluated for tax collection purposes.

Currently, the FBR is short by PKR 188 Billion in tax collection. So, for filling such big difference, the rise in the valuation table occurred to increase the tax collection and decreasing the shortage down.

Capital Value Tax

It is the tax that is paid by the buyer at the time of purchasing a property. It is levied at 2% of the value recorded. CVT is compulsory to be paid whether the property has been gifted or purchased.

Recommendations had been made by the federal government to reduce CVT and stamp duty to 1%. But it is still a total of 5% (2% CVT and 3% Stamp duty) for the urban properties.

Stamp Duty

It is the same as the CVT paid at the time of the acquisition of a property. It is currently the 3% which is been paid along with the CVT.

Withholding Tax

It is a federal tax payable by both buyer and the seller if the worth of the property is greater than PKR 4 Million at the time of registration. Withholding tax is paid by the seller only if the seller sells the property within the three years of buying it.

By Buyers

  • For non-filers, 4% of the FBR rates.
  • For filers, 2% of the FBR rates.

By Sellers

  • For filers, 1% of the FBR rates and none if sold within five years of purchase.
  • For non-filers, 2% of the FBR rates.

Real Estate Market (Budget 2018-19)

According to budget 2018-19, following are some reforms in the real estate market:

  • FBR and DC rates will be abolished.
  • Prices of any property will be considered to be what the buyer and the seller declare.
  • Taxes will be collected on the declared value.
  • Purchaser will pay Adjustable Advance Tax of 1% on the declared value. Adjustable Advance Tax will replace the existing Withholding Tax (WHT) paid by sellers and buyers of property. Adjustable Advance Tax, like WHT, will be adjustable into annual taxes of the taxpayers.
  • Non-filers cannot buy property with a declared value greater than PKR 5 million.
  • To discourage undervaluation of property, FBR will be given the right to purchase any property within six months of its registration. It can, however, only be done after paying a certain amount above the declared value.
  • In 2018-19, the amount to be paid above declared value will be 100% more.
  • In 2019-20, it will be 75% above the declared value.
  • From 2020-21 onwards, it will be 50% above the declared value.

Provinces will be requested to collect 1% tax under Stamp Duty and Capital Value Tax (CVT) on the declared value, after abolishing DC rates.

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