Feb 14,2023
Pakistan has seen a significant growth in its real estate sector over the past few years. With the rise of urbanization and the growth of cities, property ownership has become a major source of income for many individuals and families. However, along with the ownership of property comes the responsibility of paying taxes. Property tax is one of the major sources of revenue for the Government of Pakistan.
In this article, we will discuss the current scenario of property tax in Pakistan for 2022-2023 budget, including the Fbr tax, process of property tax calculation, payment, registration and the future of property tax in the country.
In the Budget 2022-23, the Government of Pakistan has made several changes in the taxation policies regarding the real estate sector. The real estate sector has been divided into three segments, which include plots and files sector, construction sector, and highrise apartments. The aim behind the segmentation is to promote certain segments of the real estate sector and discourage investments in others.
There are total 3 types of taxes in Pakistan:
In Pakistan, the Capital Value Tax is a tax imposed on the sale or transfer of immovable property, such as land, buildings, or houses. The rate of Capital Value Tax is determined by the Federal Board of Revenue (FBR) and can vary depending on the type of property being sold or transferred and the amount it is being sold for.
According to the Federal Act of 2006, the Capital Value Tax rate in Pakistan can be as low as 2% of the property value at the time of the purchase agreement. However, some individuals choose to avoid paying the full amount of tax by only declaring the DC rate of the property instead of its actual market value. This practice of undervaluing the property helps individuals to pay lower Capital Value Tax.
The government has revised the Withholding tax for all three segments of the real estate sector. The withholding tax is a tax that is deducted at source on the payment made for purchasing or transferring a property. The revised withholding tax rates will be applicable from July 1, 2022. The new rates are as follows:
Capital gain tax is a tax imposed on the profit earned from the sale of a capital asset. In Budget 2022-23, the government has revised the Capital gain tax and its implications for all three segments of the real estate sector. The new Capital gain tax rates are as follows:
For Plots/files, CGT will only be applied if the property is sold before 6 years. After the 6th year, the property is exempt from CGT. The tax rate varies depending on the holding period:
For Houses/built-up properties, CGT will only be applied if the property is sold before 4 years. After the 4th year, the property is exempt from CGT. The tax rate varies depending on the holding period:
For Apartments/highrise properties, CGT will be applied at a rate of 15% for the first year and 0% from the second year. The tax rate varies depending on the holding period:
Another major change in the budget 2022-23 is the taxation of real estate assets on a deemed rental income basis above 25 million. This means that the government will consider a property to be earning rental income even if it is not actually rented out. The property owner will be taxed on this deemed rental income. The tax rate for the deemed rental income tax is 10%.
The government's aim behind these changes in the taxation policies of the real estate sector is to encourage investments in the construction sector and discourage investments in plots and files and highrise apartments. These changes will have an impact on the real estate market and investors should consider these changes before making any investment decisions.
The government of Pakistan in the Budget 2022-23 has announced an increase in the withholding tax, which is paid by the purchaser of a property before the transfer of ownership.
The withholding tax has been revised to 2% for filers and 5% for non-filers, up from 1% and 2% for filers and non-filers, respectively.
This change in withholding tax has a significant impact on the cost of transfer for plots, houses, and flats in Pakistan.
For example, if a property has an FBR value of 1 crore, then a filer would pay 2 lakhs in tax and a non-filer would pay 5 lakhs, as compared to the previous rates where a filer would pay 1 lakh and a non-filer would pay 2 lakhs.
The 2022-23 budget, which was recently announced by the government of Pakistan, has had a significant impact on the real estate sector. The budget has introduced several changes to the property tax system, including an increase in the tax rate for commercial properties.
Along with an introduction of a new tax bracket for properties valued over PKR 50 Million. These changes are expected to increase the revenue generated from property tax and to provide a boost to the real estate sector.
The Federal Board of Revenue (FBR) is the primary government agency responsible for the collection of property tax in Pakistan. Property owners are required to pay the property tax to the FBR annually based on the rental value of their properties.
The FBR has introduced a formula for calculating property tax, which takes into account factors such as the size and location of the property. The payment of property tax can be made through the official website of the FBR or by visiting the local property tax office.
The calculation of property tax by the FBR in Pakistan is based on the rental value of the property. The formula for calculating property tax is as follows:
Property Tax = (Rental Value of Property x Tax Rate) / 100
The Tax Rate varies between 2% and 5% depending on the category of the property, which can be residential, commercial, industrial, or agricultural.
The payment of property tax to the FBR can be made through the official website of the FBR or by visiting the local property tax office. The payment can be made in the form of a demand draft, cheque, or through online banking.
Property owners are advised to keep a record of their property tax payments to avoid any confusion or disputes in the future.
Finally, failing to pay property tax can result in penalties and legal consequences for the property owner.
In Pakistan, annual property tax is calculated based on the size and location of the property. The Federal Board of Revenue (FBR) has introduced various categories of properties, including residential, commercial, industrial, and agricultural. The tax amount for each category is different, and it depends on the location, age, and type of property. For instance, a residential property located in a high-end area would be taxed at a higher rate as compared to a similar property located in a less developed area.
In order to calculate the property tax, the FBR has introduced a formula based on the rental value of the property. The formula is given in the above given information.
Where the Tax Rate varies between 2% and 5% depending on the category of the property.
Once the property tax has been calculated, the next step is to make the payment. The payment of property tax can be made through the official website of the FBR or by visiting the local property tax office. The payment can be made in the form of the following:
In addition to the annual property tax, property owners in Pakistan are also required to pay a property registration tax. This tax is levied at the time of purchasing a property and is based on the value of the property. The property registration tax is collected by the provincial revenue departments and is used for the development of local infrastructure and other public facilities.
The real estate sector in Pakistan is growing at a rapid pace, and the government is constantly looking for ways to increase its revenue from the sector. In the future, it is expected that the government will introduce new measures to make the property tax collection process more efficient and to increase the revenue generated from property tax.
