Clarifying Confusions in Pakistan Real Estate Taxes

Clarifying Pakistan Real Estate Taxes

Ever since the new  Pakistan real estate taxes, a lot of people are misinterpreting them specially CGT and Advance Tax.  There are a lot of confusions and different interpretations even among the Tax lawyers.  We have clarified both these taxes in different articles in detail and you can read more about  CGT and Advance Withholding Tax . In this article we will try to bring more clarity about the Pakistan real estate taxes.

What are the Pakistan Real Estate Taxes

Basically there are three different broad categories of Pakistan real estate taxes.

1. Advance income Tax collected by Federal Government.
2. Property Tax collected by Provincial Government.
3. Capital Gains Tax.

Now we will discuss these three broad categories in detail and the taxes included in them one by one.

Advance income Tax collected by Federal Government

Normally called as advance income tax or withholding tax. This tax is collected before the transfer of the property and is adjustable in the income tax  returns you submit annually. It is important to understand that this is not a direct tax on property but a tax on your income.

Which Property Rate To Use

For the purpose of Advance Withholding Tax, FBR Values of properties are used for calculation.

Who Pays It

It is payable by both seller and purchaser if the FBR Value of the property is more than 4 Million PKR as per following rate :

1. Purchaser : Filer pays 2% and Non Filer pays 4% as per FBR Value.
2. Seller : Filer pays 1% and Non Filer pays 2% as per FBR Value if the property is sold within 3 years of its purchase.

Exemptions

1. No Advance withholding Tax is collected if the FBR Value of the property is less or equal to 4 Million.

2. Dependents of Shaheeds do not pay any Advance Withholding Tax regardless of the FBR Value of the Property.

Important Notes

1. The tax you submit as Advance Tax is adjustable  against  your income tax returns.

2. If you do not have any income source in Pakistan and you are a non-resident . You can demand a refund of this amount in your annual tax returns.

3. The Advance Withholding Tax is adjustable against Capital Gains Tax in income tax returns.

4. FBR Values shall apply on the areas which are notified in such notifications. The area which are not yet notified shall be subjected to DC Rates or any other authority authorized for stamp duty.

Property Tax collected by Provincial Government

These are the taxes collected by the Provincial Government and are the only direct taxes on your property. It includes two taxes as under:

1. Capital Value Tax (CVT)
2. Stamp duty

Which Property Rate To Use

For the purpose of CVT and Stamp duty, DC Values of properties are used for calculation.

Who Pays It

It is payable by the purchaser regardless of the DC Rates as under:

1. CVT at 3% of DC Rates.
2. Stamp Duty at 2 % of DC Rates.

Exemptions

No one is exempted from CVT and Stamp duty on purchase of real estate as per Pakistan Real Estate Taxes law.

Important Notes

1. They are paid as per DC rates and not FBR Value of your property. There is a lot of confusion and some real estate agents are charging it at FBR Values which is completely wrong.

2. These are direct taxes on your property and are not adjusted or refunded in annual tax returns.

Capital Gains Tax

CGT is payable to the Federal Government as per the new policy of Pakistan Real Estate Taxes. Capital gains tax on property (CGT) is applicable  on the difference between your buying price and your selling price.

Who Pays It

It is payable by seller as per following rate :

1. 10% of profit you have made if you sell it in first year of your purchase.
2. 7.5% of  profit you have made if you sell it in second year of your purchase.
3. 5% of  profit you have made if you sell it in third year of your purchase.
4. 0% of  profit you have made if you sell it in fourth year of your purchase.
5. 5% flat rate on profit for all properties purchased before 1st July 2016 if they sold within 3 years of their purchase.
6. For army officers benefit plot and plots given to dependents of Shahuda the CGT is 0%.
7. CGT on Government welfare plots will be levied at 50% of the normal percentage. 5% in first year , 3.7% in the 2nd year and 2.5% in the 3rd year.

Exemptions

1. CGT is not levied on any property if sold after 3 years of its purchase.

2. No CGT is levied on Army officers benefit plot & Dependents/wards of Shaheeds.

Important Notes

1. Advance Tax submitted by the seller at the time of transfer of the Property is adjusted against CGT in income tax returns.

2. The registration authorities are not authorized to collect such Capital Gain Tax on immovable property. The registration authorities are to collect advance tax under Section 236C from seller of the property and advance tax under section 236K from buyer of the property. Hence capital gain tax on the sale of immovable property is to be paid by the taxpayer himself while filing the income tax return. For example, if any sale of immovable property is made in the financial year from July 2016 to June 2017, the taxpayer while filing the income tax return for the tax year 2017 shall pay the capital gain tax after adjusting the advance tax paid under section 236C.

If you have any more questions please feel free to ask us at our Discussion Forum.

IMP: The information provided in this article is based on 100% Facts and figures and deducted from various reliable sources including the FBR notifications and website here.

Contributed by

Captain (Retd) Shahnawaz Yaqub Bhatti

CEO & Investment Consultant at Imlaak

Mob & whatsapp : +923331717170

Skype : Shahnawaz.yaqub