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Types of Property Taxes and their Definition.

October 8, 2018

Along with income tax and sales tax, there are a number of taxes that one ends up paying as a citizen of Pakistan. However, the most confusing by far has to be the host of property-related taxes which can be overwhelming and confusing for any new entrant to the property market. Following is your guide to the kinds of property taxes and when they are applicable in Pakistan.

 

The Different Kinds of Taxes

Following are the most important taxes that are applicable on property in Pakistan:

  1. Property Tax
  2. Capital Value Tax
  3. Stamp Duty
  4. Withholding Tax (or Advance Tax)
  5. Capital Gains Tax

 

Property Tax

Property tax is a provincial tax levied on the annual rental value of the property, based on Urban Immovable Property Tax Acts of the respective provinces. The tax rates differ between provinces. However, it is either a flat rate, or a percentage of the annual rental value. Depending on the provinces, the rate of taxation can differ depending on whether the property is rented or self-occupied.

 

Capital Value Tax (CVT)

The Capital Value Tax (CVT) is another provincial tax and is paid by the buyer at the time of acquisition of property. As the name suggests, it is payable on the capital value of an acquired asset. It is paid when the said asset – in this case, immovable property – is acquired.

If it is a case of inheritance or a gift from spouse, parents, grandparents or siblings, CVT will not be levied. In cases where it is a gift or exchange, or where property value is not mentioned in the transaction, the value of the property is going to be calculated according to DC Rates.

It must be noted that while previously the CVT was levied only in urban areas, according to a news report, it will now also be levied on rural areas that have been developed as well.

 

Stamp Duty

Stamp Duty is another tax that is levied by the provincial government and is paid by the buyer at the time of acquisition of property. It is basically a tax required on most legal documents under the Stamp Act 1899. Stamp duty is levied at 3% of the DC rates of the property.

 

 

Withholding Tax (WHT)

According to a notice issued by the FBR, Withholding Tax (WHT) is a federal tax payable by both buyers and sellers if the value of property is great than PKR 4 million. WHT is paid by the seller only in case he is selling the property within three years of buying it.

It basically acts as an advance on other taxes and, hence, is also adjustable into the tax liabilities of the buyer and against the CGT of the seller. It has to be paid at the time of registration of the sales deed. Following are the rates of WHT:

 

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.

 

Capital Gains Tax (CGT)

The Capital Gains Tax (CGT) is a federal tax payable by the seller. When the seller makes profits on selling property (capital asset), it is the profit (capital gain) which is taxed, hence the name. According to the Finance Act 2017, CGT is levied only when the property is sold within three years of its purchase. The rate of taxation is 10% for the first year, 7.5% if sold during second year and 5% if sold during the third year. These gains are to be calculated according to the fair market value, based on FBR’s valuation table. Any property held for more than three years will not make the seller liable for payment of CGT.

These are some of the most common taxes that are applied to the property in Pakistan. If you have any question about these, ask away in the comments.

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Your Guide to Property Tax in Pakistan 2018.

October 1, 2018

Whether you’re moving to Pakistan or already there, you might well be tempted to look into buying property in the country. If you do so, you’ll find that property tax is a concern for Pakistani citizens and foreign residents alike. Here’s all you need to know about property tax in Pakistan.

What is property tax in Pakistan?

Property tax is technically any tax that you pay because of property that you buy, sell or own. They include sales taxes that you pay when the purchase is made and maintenance taxes that you pay every year.

In Pakistan, the system is no different: a variety of taxes are payable on property. Here’s a look at each of the main ones.

Who has to pay property tax in Pakistan?

Everyone who buys, sells or owns property in Pakistan will probably have to pay property tax, although the details of which ones you’ll have to pay – and exactly how much they are – vary considerably. The rules also vary between the different provinces of Pakistan.

There have been many changes to Pakistan’s tax policy in recent years, both at the federal level and in the provinces. Part of the reason for this is that a very low percentage of Pakistani residents file income tax returns – which is also why certain taxes are charged at different rates, depending on whether or not you file your taxes. What this means is that you should check all the information carefully with a local professional who can advise on the latest rules in your area.

It’s possible for foreigners in Pakistan to buy property, although there are administrative hurdles in the process. As for tax: expats are no different from Pakistanis in terms of their tax liability, although it’s worth remembering that you only need to pay tax on income gained in Pakistan – foreign income isn’t taxed by the Pakistani authorities. So even if you’re not earning any income in Pakistan, it’s still worth filing a tax return with 0 income as that will save you from having to pay many other local taxes.

What kinds of property taxes are there in Pakistan?

Property taxes can be broadly put into two groups:

  • Sales taxes, which are paid when a property changes hands
  • Maintenance taxes, which are paid regularly

In Pakistan, there are examples of both. Here’s an introduction to each of them in turn.

Sales taxes in Pakistan

Sales taxes are the taxes you pay on property when you buy or sell. There are numerous relatively small sales taxes in most Pakistani provinces:

  • Stamp duty
  • Capital value tax
  • Registration fee
  • Town tax
  • Withholding tax

However, you should bear in mind that there are substantial differences between the various provinces in Pakistan, so you should check exactly which taxes are payable in the area in which you’re buying, as well as how much they are. The below is a general guide but many details can vary substantially.

For example, in Punjab – the most populous province – there was a major overhaul of the property tax system in 2017, in which stamp duty, capital value tax and the registration fee were merged together into one tax which is now known overall as stamp duty.

Most of the above-mentioned taxes are for the buyer to pay, but withholding tax may be paid by both buyers and sellers. For sellers, capital gains tax is also a consideration.

Stamp duty

Stamp duty is a tax to pay the province. It’s generally 3%, and it’s paid by the buyer.

You might find, for instance in Punjab or other urban areas, that the ‘stamp duty’ fee also encompasses other payments due, including capital value tax and the property registration fee. In that case, the figure payable might well be more than 3% – it could be 5% instead.

Capital value tax (CVT)

In your province, CVT may end up falling under the banner of stamp duty, but if not, you may have to pay it separately. It goes to the central government. CVT is generally a tax of 2% of the property value, paid by the buyer.

You might not have to pay it if your property is under a certain size.

Registration fee and town tax

Both of these fees are 1% of the property value. They may or may not be payable separately, depending on where you are. In Punjab, for instance, the registration fee is part of the stamp duty bill.

Withholding tax

A withholding tax is one that’s paid directly to the authorities, without the involvement of a second party.

  • Both buyer and seller are liable for paying withholding tax on a property transaction
  • Buyers have to pay 2% if they file an income tax return, or 4% if they don’t
  • Buyers only have to pay withholding tax if the property is worth more than Rs 4 million
  • Sellers have to pay 1% if they file a tax return, or 2% if they don’t
  • It’s paid to the federal government rather than the local authorities
  • You have to pay this tax at the same time as you pay the rest of the transaction fees

Withholding tax is an ‘advance tax’, meaning that it can be claimed back when you file your tax return – you can deduct this from the rest of the taxes you owe.

Capital gains tax

Capital gains tax is paid on the profit you make on a property – that is, the amount you sell it for, minus the amount you paid for it originally.

  • The rates for capital gains tax have changed considerably in recent years, so make sure to check the latest figures.
  • For the 2017-2018 tax year, the rate to pay varies between 0% for properties acquired before July 2013, and 20% for properties acquired since July 2016. The 20% is only for those who don’t file a tax return. Otherwise the top rate is 15%.

Summary: property sales taxes

Property worth over Rs 4 million Property worth under Rs 4 million Buyer Seller Cost
Stamp duty 3%- 5%.May be higher if it includes other fees.
Capital Value Tax 2%. May be part of stamp duty bill.
Registration fee 1%. May be part of stamp duty bill.
Town tax 1%
Withholding tax ✓ seller only Buyer: 2% or 4% Seller: 1% or 2%
Capital gains tax 0%- 20% of profit

 

Maintenance taxes in Pakistan

As well as taxes to pay when buying or selling a house, home ownership comes with a tax burden as well. In Pakistan there are two principal property maintenance taxes to be paid regularly:

  • ‘Property tax’
  • Rental income tax

‘Property tax’

All the taxes discussed on this page are property taxes, but the specific tax called ‘property tax’ is a maintenance tax you pay your province on a recurring basis.

  • The amount of property tax you have to pay varies between the provinces
  • It might be at a flat rate, although in some provinces it’s taxed progressively.
  • In some places, it can be as high as a 25% flat rate of the annual rental value
  • In Punjab, for example, the rate is 5% of the annual rental value
  • This is a tax paid by the owner of the property
  • Payment times and methods are dependent on the province

Rental income tax

In Pakistan, you have to pay tax on any money you gain from the property, so if you rent it out there’ll be tax to pay on the rent unless the gross amount from the rent doesn’t exceed Rs 200,000.

  • Rental income is taxed progressively, so the rate you pay depends on the total amount you’ve received.
  • The rate goes up to 20% of the gross amount of rent received.
  • For larger totals, there’s also a fixed fee.
  • For instance, if you earn between Rs 600,000 and Rs 1 million, you pay 10% plus a fee of Rs 20,000.

What other fees are there with my property in Pakistan?

Taxes are an important part of the fees you’ll need to pay when buying or selling a property, but there will certainly be other costs to bear in mind as well – above and beyond the actual buying price. These might include agency fees and legal fees, and will always vary depending on the details of the sale.

Are there any property tax deductions I can claim in Pakistan for 2017-2018?

The percentage of people in Pakistan who pay income tax is notoriously low, but there are good reasons to still file your taxes, especially if you’ve recently bought or sold property.

  • You should be able to claim your withholding tax back, as part of your tax return.
  • As mentioned above, the rate of withholding tax that you pay also varies depending on whether or not you submit a tax return – if you do, you pay less.
  • Check with your local province to see if there are further deductions you can claim on taxes.

When do I pay my property taxes in Pakistan?

The tax year in Pakistan runs from the 1st of July to the 30th of June: income tax returns should be filed after the tax year ends. Sales taxes should generally be paid when the rest of the sales fees are paid.

How do I pay my property taxes in Pakistan?

The methods of payment for sales taxes largely depend on your province, as they all have their own system for collecting the tax that’s due. You should find out about how to pay your taxes as soon as you get involved in the property market.

For income tax, you may well be able to pay online.

Paying property taxes online

Whether you’re paying income tax or a sales tax bill, you should consider paying online if you can: it can save a lot of hassle and give you greater peace of mind.

If you’re not in Pakistan 100% of the time, you might regularly find yourself trying to figure out how to deal with finances in multiple countries, especially if you need to transfer a bigger amount of money into Pakistan. If you transfer money into or out of Pakistan via a bank, you may lose around 4-5% to the banks because of the markup they put on the exchange rates. And that’s not to mention the fixed fees they often charge as well.

Taxes are never easy, but there’s no need to make them harder than they have to be. That’s why it’s worth finding out all you can about property tax in Pakistan, and checking the best way to pay it.

Good luck!

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What Naya Pakistan means for Pakistani Real Estate.

July 30, 2018

With an unprecedented showmanship by the Pakistani people, a new government has been recently brought to power in the General Election 2018. This foreshadows a lot of changes that will take place in the coming few months. The new government’s policies are bound to have an effect on the real estate market of Pakistan. Read on below to see what this “Naya Pakistan” means for the Pakistani real estate market.

Post 2016, property taxes reduced the prices of the overall real estate market. While the market had barely recovered from this, the rupee got depreciated against the dollar and became one of the worst performing currencies in Asia. The people and the market had just gotten used to the idea of an increased cost of living when the elections came up.

All these back to back events created a scenario where it became increasingly lucrative for expats to invest and earn exponential ROI. Based on historical trends, property prices always fall during election year and increase in value post-election. This time around, because of the political party in power, the positive changes are going to be huge since they have to deliver on their mandate.

This means that investor friendly atmosphere will be created especially for overseas Pakistanis looking to give back to their homeland. Therefore, with the decrease in the property prices and the decrease in the value of the Rupee against the Dollar, this is an ideal time to invest in Pakistan.

One of the main benefits of investing in Pakistan right now is that you can get property in prime locations of Pakistan – something that even overseas Pakistanis used to give a second thought to pre-2016. Locations like DHA, Gulberg, Ferozepur Road and others have now opened up to a lot of people and a lot of people have already taken advantage of such an opportunity.

Some of the areas one can consider are as follows.

DHA Lahore

As always, DHA Lahore happens to be the most renowned, reliable and respected of the property options. You can make an investment in any phase of DHA in Lahore for small amounts considering the general economic scenario.

Commercial Plots DHA Lahore

This is one of the best times to invest in a high return commercial area such as DHA Lahore. These would give a high rental yield of around 7-8% per annum.

LDA City

Another option for the people is LDA City. This is a rapidly developing area with a lot of local investors taking interest in this area. The file for a 1 Kanal plot start from PKR 35 Lacs, for a 10 Marla plot it begins from PKR 25 Lacs and for a 5 Marla plot, the file price starts at PKR 15 Lacs.

Gulberg, Lahore

New mixed use development projects guarantee annual rental yield of 7-8% making it a highly lucrative option for overseas Pakistanis looking to jumpstart a business or gain rental income on a yearly basis.

The process is fairly simple and can be completed in a matter of days. It is the right time to make the investment. With the dollar price increase, the taxes on the properties reducing the price, this is the ideal time for overseas Pakistanis to put their money to work.

All you need is an investment of a few thousand dollars and you can start earning decent annual income based on your area of investment.

These are some of the areas where overseas Pakistanis can invest and earn despite the overall property market being extremely slow. Talk to us in the comments section below if you are interested in making a purchase or if you have any other areas you want us to highlight.

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Buy Any Pakistani Property at Half Price!.

July 17, 2018

That may not seem true but believe us its true. Overseas Pakistanis can now buy any Pakistani property at 50% off. Not many property portals and agencies would tell you this but if you want to avail this option, the time to act is now.

Since 2016, the realty market has been in a state of constant flux due to the property taxes that were introduced recently. These taxes effectively reduced the cost of property as many people wanted to sell the land. Added to this, the increase in the price of the dollar has further reduced the price of property for overseas Pakistanis.

Over the course of the last two years, property prices have depreciated 20-25% due to the taxes. The value of the rupee has also depreciated against the dollar another 20-25% which brings the total savings on property up to 40-50% for overseas Pakistanis.

The recent hike of the dollar to 128 PKR is testament to the fact that this is the ideal time for investment for overseas Pakistanis considering that this is also the election year and that the property prices will rise post-election.

Where can I buy

Following are list of the most suitable investment options that you can opt for and which are guaranteed to increase in price after the elections.

DHA

As always, DHA happens to be the most renowned, reliable and respected of the property options. You can make an investment in any phase of DHA for small amounts considering the general economic scenario.

Commercial Plots DHA

This is one of the best times to invest in a high return commercial area such as DHA. These would give a high rental yield of around 7-8% per annum.

LDA City

Another option for the people is LDA City. This is a rapidly developing area with a lot of local investors taking interest in this area. The file for a 1 Kanal plot start from PKR 35 Lacs, for a 10 Marla plot it begins from PKR 25 Lacs and for a 5 Marla plot, the file price starts at PKR 15 Lacs.

Gulberg

New mixed use development projects guarantee annual rental yield of 7-8% making it a highly lucrative option for overseas Pakistanis looking to jumpstart a business or gain rental income on a yearly basis.

The process is fairly simple and can be completed in a matter of days. It is the right time to make the investment. With the dollar price increase, the taxes on the properties reducing the price, this is the ideal time for overseas Pakistanis to put their money to work.

All you need is an investment of a few thousand dollars and you can start earning decent annual income based on your area of investment.

These are some of the areas where overseas Pakistanis can invest and earn despite the overall property market being extremely slow. Talk to us in the comments section below if you are interested in making a purchase or if you have any other areas you want us to highlight.

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