3 new property taxes to impose in the budget 2022-23 

Finally, the long-awaited Pakistani budget for 2022–2023 is now here and predicted. So, there have been significant policy changes in the 2022–2023 finance law, particularly in the real estate sector.

In the 2022-2023 budget, the federal government has imposed new property taxes on real estate worth 440 billion. The government has raised the existing advance and capital gain taxes on buying and selling properties. But it has also added a new “Deem Tax” on properties (that are not in use or are extra). This article will discuss these taxes and what they might mean for Pakistan’s real estate market.

So, let’s look at the three updated property taxes in Pakistan to be imposed in the budget. 

Withholding property taxes go up

Before transferring a plot of land in the buyer’s name, the buyer will pay withholding tax. In the Budget 2022-23, the government raised the withholding tax from 1% to 2% for filers and 2% to 5% for non-filers. In contrast, the previous tax was 1% for filers and 2% for non-filers.

Withholding taxes are a significant increment, especially for people who don’t pay them. It will make the cost of transferring plots go up by a lot, as follows:

Let’s suppose the FBR value of any property in Pakistan is one crore. Here’s how the withholding tax will change:

Based on past prices:

• Filer would have to pay 1 Lacs in property taxes.
• Non-filer would have to pay a tax of Rs. 2 lacs.

As of the new prices after July 1, 22:

• The filer will impose on paying: Rs. 2 l.acs
• Non-filer pay tax of 5 Lacs.

Introducing New Deem Property Taxes

FBR has put a 1% Deem Tax on properties worth more than 2.5 crores ( that are not in use or are extra). These include houses, plots, farmhouses, and other types of land worth over 2.5 crores but not producing regular income. The government decided that these properties bring in 5% per year in revenue, of which 20% will be taxed.

Let’s consider that you have a plot worth five crores. The government will assume that this plot will bring revenue of 25 lacs, which is 5% of the income. The Deem property tax will be 20% of the assuming amount, which is 5 lac. If your property is worth more than 2.5 crores, you will have to pay 1% tax.

Key Point: Please keep in mind that this tax does not apply to your first home or land. This tax is for those who have more than one home. The main goal of this measure is to tax the amount of money buried in plots that do not benefit the economy.

The following types of rentals are also subject to this tax:

• No additional tax will impose if the property taxes under Section 15 of the Income Tax Ordinance is higher than the tax imposed under this Section.
• If the tax in this section is more than Section 15 of the Income Tax Ordinance,  the difference will have to pay under this section.

Capital Gain Tax on Real Estate 

The tax period for capital gains property taxes has been extended to 6 years. In the previous CGT, you had to pay 12.5% if you sold a property within four years. According to the new change, the tax rate will be capped at 15% and be in effect for six years.

It means that a 15 % tax is due if the property is sold in the first year, 12.5 % in the second year, 10 % in the third year, 7.5 % in the fourth year, 5 % in the fifth year, 2.5 % tax in the sixth year, and 0 % in the seventh year. By doing this, it will bring 40 billion.

The Capital Gains Tax period for different types of property is as follows:

• Plots: Capital gains tax (CGT) applies if you sell a property before six years, and there is no tax in the 7th year.
• House: If you sell a house before four years, you’ll have to pay capital gains tax (CGT), but you won’t have to pay any tax in the fifth year.
• Apartment: CGT will apply for the first year, but there won’t be any tax after that.

This measure makes it easier to put money into the construction of apartments and houses and more challenging to put money into plots.

Final Words 

Pakistan has a hard time, and rich people will make significant sacrifices. Those with wealth and privilege in Pakistan need to step up and play a vital role in the nation’s economic and social development.

If a tax filer buys property as an investment, they will have to pay the following three property taxes: Withholding Tax is 2% when you buy something and up to 15% CGT when you sell it within six years. Due to the assumed income from the property, the Deem tax is 1% of the FBR value per year. The high taxes on real estate are likely to discourage people from investing. Also, the cost of building has increased significantly in the last two years. So builders may stop construction due to low demand and a high risk of losing money because of rising inflation.

Makaan Solutions keeps you up to date on the real estate market by giving you the latest news like this one. Check out our blog for more helpful information. Further, contact us if you want to buy or sell plots in the best housing projects.