With the new government, the tax has also become the most important initiative. The PTI is trying to streamline the overall process, by collecting taxes from the people of the country.
The imposition of taxes is different for all the sectors of Pakistan. Just like other prominent sectors, Real Estate has also witnessed major changes in terms of Property taxes in Pakistan.
Government is continuously trying to help people looking for property investment in Pakistan. In order to facilitate people, it has introduced an online property tax challan facility as well.
What is Property Tax?
Property tax is any tax that people have to pay while buying and selling the property of their own. Property tax includes sales taxes that one has to pay while they are purchasing property, whereas maintenance is paid every year.
Before we go into the changes, this government has made we need to understand how many types of taxes are applicable in Pakistan.
There are basically four types of taxes, mentioned below:
• Capital Value Tax
• Capital Gains Tax
• Withholding tax
• Tax Duty
Though property taxes Punjab are not welcomed by investors and they are trying to find ways to run away from these property taxes but in either case, people who are doing so will get into trouble.
FBR gets each and every information regarding your income, investments, and transactions, so you cannot hide your money matters from them. In case you are proved faulty, FBR will penalize you and might freeze your assets.
People investing in the real estate sector should know the new policies and developments going on this sector so that they do not have to face any difficulty. So this blog mainly focuses on the new taxes invasion in the country.
Basically, the tax year is of 12 month but different from the actual year that starts in January and ends in December. The tax year 2019 starts from 01 July 2018 up to 30 June 2019. The tax year ends on 30 June. The tax year 2020, has started from 1st July 2019 and will end on 30 June 2020.
Increase in Property Tax collection-Year 2019-2020
While telling about the increased property tax, a tax expert wrote in The New that:
The establishment of the directorate created a fear and people preferred to declare property values near to the fair market values. They said the valuations notified by the provinces are very low but due to transactions at the higher rates the property tax collection increased significantly.”
According to a report, Punjab has won the tax collection marathon by collecting PKR 5.02 bn during the first half of FY 18-19. Sindh stood second by collecting PKR 1.83 billion from July to December.
Both the provinces recorded a sharp increase when compared to the last fiscal year. Punjab has witnessed an increase of 22.64 percent whereas Sindh beheld 73.83 percent growth in tax collection.
Khyber Pakhtunkhwa (KPK) and Baluchistan received PKR 450 million and PKR 83 million tax on property, respectively.
Excise, Taxation & Narcotics Control Department, Punjab has revealed that there is a 5% yearly rental value that is levied as tax.
Annual rental cost is calculated by evaluating properties based on its type, be it residential or commercial, whether it is rented or self-occupied.
On the contrary, according to Excise, Taxation & Narcotics Department Sindh, the property rented or owned is not considered.
The tax imposed is 25% of the yearly rental value of the property.
How Much Tax you have to pay while selling a property?
When you are selling the property in Pakistan, you need to pay Capital Gains Tax paid on the gain of profits.
Capital Gain tax:
It is the tax that is to be paid by the seller. When the seller gains profit while selling the property, it is the capital gain which is taxable. Capital Gain Tax is levied when the property is sold within the three years of its purchase.
For the first year, 10% tax is paid, whereas 7.5 percent if sold in the second year and 5% if sold in the third year. The profit tax gain is to be calculated in reference to the fair market value.
If the property is held for more than three years, the seller is not going to pay Capital Gain Tax.
Buying a property? Here are the tax slabs for you:
When a person thinks to buy property in Pakistan, he wants to know how much tax is levied on the property purchase in Pakistan.
Below mentioned are the different types of tax that you would have to pay while purchasing property in the year 2019-2020:
Capital Value Tax (CVT) & Stamp Duty:
Becoming the owner of any property is not that easy as you have to pay the hefty amount. Capital value tax is basically a provincial tax that is paid by the buyer when buying a property.
This tax is payable on the capital value of the acquired asset. According to the Finance Act, 2006, the capital value tax is imposed at the rate of 2% of the recorded value.
According to new budget 2019-2020, the federal government has endorsed the abolition of DC rates. Currently, the total of CVT and Stamp Duty for an urban property is 5% (2% CVT and 3% Stamp Duty).
Much would-be thinking of what stamp duty is. It is a tax paid on the legal document while purchasing the property. Basically, Stamp Duty is levied at 3% of the DC rates of the property.
A tax that is payable by both buyer and seller:
There is a tax that is paid by both the parties: the one who is selling the property and the other one who is buying it.
Withholding Tax (WHT):
Withholding Tax is of great importance. It is the federal tax that has to be paid by buyer and seller when dealing on property. WTH has to be paid at the time of the property deal.
Withholding tax is also known as advance tax which clearly shows it is an advance tax on the other taxes. The person who is buying any home and is income tax filer, he has to pay 2% withholding tax.
Whereas a non-filer has to pay 45% tax. This rule is passed so that more people should file income tax every year.
On the other hand, people who are buying property need to pay tax only if the property is valued more than PKR 4 million.
The sellers of the property have to pay 1% tax is that are filers and 25 tax if they are non-filers.
Property Tax Exemptions:
The owners having any of the below-mentioned cases are exempted from paying taxes on property in Pakistan.
• The residential house having area of fewer than 5 marlas is placed in category A
• A property which is un capable of commanding annual rent exceeding PKR. 4320 is exempted from paying taxes.
• A single house commanding annual rent exceeding PKR. 6480 is not taxable if it is f occupied by the owner for his residence
• The property which is owned by orphan or disabled person which is up to PKR.12150/- per annum is also exempted
• The building owned by the government is not taxable.
• Mosques and other religious building are exempted from paying taxes.
• Public parks, playgrounds, schools, and hospitals do not fall into the tax net.
Moreover, if you are planning to sell or buy any property, excise and taxation Punjab and Sindh have released a property tax calculator for the year 2019-2020. Being official, it is the most trustworthy source from where you can calculate taxes.