Real Estate Property Taxes in Pakistan

Real Estate Property Taxes in Pakistan

Real estate property tax in Pakistan is imposed by federal, provincial, and local government bodies or councils. Usually, the Federal Board of Revenue determines property tax policies. Taxes in the Pakistani real estate industry are considered the most complicated thing. There is no sequence in the Pakistani system regarding real estate. Hence, it is a big cause in the development of the Pakistani real estate market.

Inconsistent tax policies in real estate keep international investors away from Pakistan's real estate market. There are many taxes on different levels that affect the real estate market in Pakistan.

All government bodies impose taxes in Pakistan based on property location, sizes, and types of property i.e. residential, commercial, or agriculture, etc.

Nowadays, FBR introduces property gain taxes on real estate properties. It is a unique and strange tax. This means the government wants to get its share of real estate clients' profit on sales time. It seems strange practice in the real business world in modern days.

Author’s Statement on Real Estate Property Taxes in Pakistan

Pakistan's real estate property tax mechanism is the most complicated in the world. It is hard to understand for real estate investors and real estate clients. Too many types of taxes confuse stakeholders. Moreover, the ratios of different taxes change without any framework. The tax system should be client and investor-friendly.

To attract foreign investment in real estate. The government should make Pakistan tax free country for overseas investors. Pakistan requires a real estate-friendly tax system to promote real estate business.

Types of Real Estate Property Taxes in Pakistan

There are the following types of property taxes in Pakistan imposed by government bodies of different levels in 2024.

1. Capital Value Tax (CVT):

o Capital Value Tax is imposed on the value of the property at the time of its transfer or sale. The tax rate can vary depending on the location and value of the property. The CVT is typically calculated as a percentage % of the properties assessed or declared value during the transfer.

o In Pakistan including federal areas and provinces, the ratio of CVT is different in terms of percentages %, It starts from 2% to 5% respectively.

2. Stamp Duty

o Stamp Duty is another type of tax applicable during property transactions, including sales, leases, and transfers. The rate of stamp duty is usually based on the property's value and is paid by the buyer or transferee.

o If we look at the ratio of stamp duty taxes in Pakistan. It is different in federal and provincial. It is also calculated in percentages %. Normally, It starts from 1 % to 7 % in different provinces.

Author’s Remarks on Stamp Duty

It should be fixed in the country in terms of percentage. In real estate try to give maximum benefits to investors, and clients.

3. Property Tax or Annual Rental Value (ARV)

It is a type of tax imposed on property owners by local government. All property owners own property and are responsible for paying tax on rental incomes. The tax is based on the assessed rental value of the property.

The ARV is determined by the local municipal authorities and can vary depending on the property's size, location, and amenities.

Normally, it does impose in % percentages. It starts from 0.5% to 7% depending on provinces and federal areas.

Types of Real Estate Property Taxes in Pakistan

 

Author’s Remarks Property Tax or Annual Rental Value (ARV)

It is a good practice to collect taxes on rental properties in Pakistan. However, the government does not provide return services to residents. Moreover, it is hard to identify the rental income in the record. There is no business in these types of income collection and taxes.

4. Capital Gains Tax

o Capital Gains Tax: It is a tax that the government imposes on profit earned by property owners in Pakistan. It applies when the property is sold for a higher price than its purchase price. The tax rate for capital gains can vary based on the holding period of the property i.e. years or more.

o Capital gains tax is different on residential properties and a commercial property depending on the holding period of the property and the value of profit.

i) Residential Properties: If the property is held for 1 year or more (long-term capital gain), the Capital Gains Tax rate is fixed at 10% of the gain.

ii) Commercial Property: If held for less than 3 years, the gain is added to the individual's regular taxable income and taxed at the applicable income tax rates.

• If held for three years or more, the Capital Gains Tax rate is fixed at 7.5% of the gain.

Author’s Remarks Capital Gains Tax:

It is an injustice, I think for owners to give a share to the government in terms of profit. There are many other tax types where the government takes its shares in the form of fees and taxes. It is not a good practice in the real estate business industry.

5. Withholding Tax on Property Transactions

o Withholding Tax is deducted by the buyer or transferee at the time of the property transaction and is payable to the tax authorities. This tax is a form of advance tax on the sale or transfer of immovable property.

i) Residential Property: The applicable withholding tax rate is 1% of the gross sale consideration if the property value exceeds PKR 4 million.

ii) The applicable withholding tax rate is 2% of the gross sale consideration if the property value exceeds PKR 4 million.

6. Land Revenue and Property Transfer Fees

o Depending on the location and type of property, additional land revenue or transfer fees may be applicable during property transactions.

7. Local Government Taxes

o Local governments may impose additional taxes or fees on properties within their jurisdictions for the provision of local services and infrastructure development.

Ending Lines Real Estate Property Taxes in Pakistan

These property taxes and duties are administered and collected by different government departments at the federal, provincial, and local levels in Pakistan's real estate sector. The rates and regulations related to property taxes can vary across different regions and provinces in Pakistan.

Property owners, real estate clients, and investors should consult with tax advisors or local authorities to understand their specific tax obligations based on the type and location of their property anywhere in Pakistan.

Pakistan needs to impose regular and customer-friendly tax policies in the real estate industry to promote a real estate investing culture. Moreover, a large number of overseas Pakistanis invest in the real estate sector. They should be free from taxes.