Taxes are crucial to the survival of a country. They are the government’s basic source of finance. Taxes are levied on the citizens of a country in order to be invested back into the country— the money is spent on making citizen welfare and providing a higher standard of living for these citizens.
Property tax in Pakistan is considered one of the most important types of taxes to the government. This is mainly due to the fact that property ownership and real estate investment are is a huge deal in the country. Sources at the World Bank say that nearly 60–70% of the country’s wealth is stored in Pakistan’s real estate sector.
Property Tax Defined
Broadly speaking property tax in Pakistan is defined as the amount of money a property owner is liable to pay the government. Don’t be fooled by the term property. It doesn’t only pertain to real estate assets such as plots or houses you may own.
Property is an umbrella term that includes any tangible, taxable assets you own. These could be your car, an office building, a factory, or even an agricultural farm.
As of 2020, the amount of property tax in Pakistan is to be levied at 2.5%. Moreover, the tax year in our country begins on the 1st of July and ends on the 31st of June of the next year. For example. The next tax year will begin on the 1st of July 2021 and end on the 31st of June 2022.
Types of Property Taxes in Pakistan
There are quite a few different types of property taxes that are applicable to citizens:
- Capital Value Tax (CVT)
- Capital Gains Tax (CGT)
- Withholding or Advance Tax
Capital Value Tax (CVT)
This kind of property tax was promulgated under the Finance Act of 2006. It states that anyone who purchases any kind of property will be liable to pay the Capital Value Tax. So, if you buy a land asset in Pakistan’s real estate market, you will have to pay 2% of the total recorded amount (of the property). This tax is paid to the government while purchasing the asset.
Property tax is inclusive of all property that is transferred as a gift or exchange. However, if the transfer is between your spouse or blood relatives, it cannot be filed for a Capital Value Tax. So, for example, your parents buy a plot in Pakistan’s real estate market and gift it to you. You are not liable to pay any tax on this gift.
Capital Gains Tax (CGT)
Capital Gains Tax is quite similar to Capital Value Tax. While the previous property tax in Pakistan is to be paid by the customer, CGT is paid by the seller of the product. This property tax is paid on any profits made on the sale of profits.
This property tax was introduced under the Finance Act of 2017. It is only imposed if the resale occurs within three years of acquiring the project initially. It’s important to keep in mind that the tax rate is 10% if it’s sold within the first year, 7.5% during its second year, and a mere 5% of its sold in the third year of possession. These gains are calculated according to the FBR’s valuation table.
Withholding tax is essentially a mix of CVT and CGT. According to regulations of property tax in Pakistan, it is the amount paid both by the buyer and seller. This is when a property is finally sold.
This tax came into being under the Income Tax Ordinance of 2001 and promulgates that if the property, be it a car or land, is filed on income tax by the buyer, they will have to pay the set 2% tax. However, if the buyer is a non-filer, the amount of tax imposed increases to a whopping 45%. The same goes for sellers. If they are tax filers, they only need to pay 1% however, if they aren’t they must pay a 25% withholding tax.
While this may seem like a harsh rule, it’s quite effective in ensuring that property buyers and sellers become tax filers.
Property Tax Exemptions
No one likes paying taxes, and that’s why there are so many cases around us of the FBR purging tax evaders. So, before you start dreading paying property tax in Pakistan, make sure you qualify for it.
Experts at Makeen Marketing have compiled a list of persons who may be exempt from paying taxes.
- Owners of residential property smaller than 5-marla are exempt from paying taxes. So, if you own a 3.5 marla property in Islamabad Model Town, congratulations! You are exempt from property tax.
- A single-story house that incurs a rent of RS 6,480, which is also occupied by the legal owner of the property is exempt from tax.
- Property owned by widows, orphans, and/ or disabled persons is exempt.
- Mosques and religious premises are not to be taxed.
- Institutions such as public libraries, schools, and boarding schools are exempt from paying tax.
Methods of Payment of Property Tax in Pakistan
The payment of property tax in Pakistan is fairly simple. You can pay your taxes via any of the following three methods.
A Tax Collection Department
For the ease of its citizens, the government of Pakistan has ensured that every province in the country has its very own tax collection department. All you have to do is contact your tax collection department and follow the tax payment procedures set by them.
Collecting Your Taxes at Banks
This is an even easier method than the last. All you, as a tax-filer, really need to do is get in touch with your bank and have them generate an online property tax challan in your name. Next, just pay the tax amount.
Tax Collection Via an Online Banking System
This is perhaps the easiest tax payment method out of the three. You can now pay your taxes with the touch of a button. Just log into your online banking system and pay your taxes online.
Need more advice on real estate legalities? Follow the Makeen Marketing blog! Makeen Marketing is a real estate consultancy firm operating out of Islamabad— but don’t worry! We deal in real estate housing societies all over the country. Interested in availing of our services? Simply contact us at (+92) 300-0525925 or get in touch with one of our real estate experts.