Tax on Property in Pakistan

The Real Estate industry is one of the highly taxed sectors of Pakistan. Due to that, it contributes largely to the GDP of the country, as those heavy taxes are the core of the government’s revenue generation. Therefore, real estate has always remained at the forefront of tax applicability from successive governments.

The budget 2024-2025 also supports this fact, as the federal government has implemented a whole bunch of taxes on property in Pakistan. These property taxes in Pakistan are generally regulated by the Federal Board of Revenue, FBR Pakistan, the largest authority for taxation and respective regulations in the country.

Well, tax percentages vary greatly depending on the individual’s tax status, i.e., filers, non-filers, or late filers. Given that, let’s get into the details of the newly applied taxes on property in Pakistan as per the Budget 2024-2025, and their expected implications on the overall real estate market of the country.

What is FBR Property Tax?

FBR stands for Federal Board of Revenue, the government department responsible for collecting taxes in Pakistan. The tax on property in Pakistan, which we will discuss below, and all other taxes are applied by the FBR. The FBR divides taxpayers into 3 categories:

• Filer: The person who is a regular taxpayer and whose name is on the Active Taxpayers List (ATL).
• Late-Filer: The person who does not return taxes on time or pays the taxes after the due date (July, August, September) or as described by the government.
• Non-Filer: The person who is not a regular taxpayer and whose name is not on the Active Taxpayers List (ATL).

Types of Property Taxes in Pakistan

Before we get into the details of the property taxes implemented or modified in the budget, it is important to know the types of taxes applicable to all types of priorities across the country. So basically, there are 3 types of property taxes in Pakistan:

• Capital Gain Tax (CGT)
• Advance Property Tax or Withholding Tax
• Federal Excise Duty (FED)
• Capital Value Tax (CTV)

Capital Gain Tax

Capital Gain Tax (CGT) is basically the tax on property that is to be paid from the net profit or the gain obtained from the sale of immovable property.

The percentage of CGT as implemented in budget 2024-2025, applicable on the sale of the property after 1st July 2024, is given as:

• 15% CGT to be paid by the Filers
• 15-45% CGT to be paid by Non-Filers(the exact amount shall be decided by the FBR, depending on the value of the property)

It is very important to know here that till last year, the CGT was dependent on two things: the holding period of the property(1-6 Years) and the type of property (Plot, Constructed Property, or Flat). However, as per the revised Taxes on Property 2024, the CGT percentage will remain the same IRRESPECTIVE of the property holding period and type of property.

Advance Property Tax or Withholding Tax

Advance tax on property is applied when selling or purchasing any immovable residential or commercial property. According to the Income Tax Ordinance 2002, the FBR Advance Property Tax is to be paid right after the registration of the property sold/bought or as soon as the purchaser gets the file/plot allocation.

This tax applies to the seller as well as the buyer of the property. As per the new property taxes in Pakistan, the advance property tax is to be paid as follows:

Advance Tax on SALE or Transfer of Immovable Property

Advance Tax on the PURCHASE of Immovable Property

Advance tax on the purchase of property is governed by the Section 236K of the Income Tax Ordinance, 2001. This tax is also applicable from/after 1st July 2024. The advance tax rate on the purchase of immoveable property is subdivided as:

To Note:

• Previously Advance Tax on property was applicable till the actual possession of the plot, however, the government has revised the policy for the year 2024 and made the Advance Property Tax applicable from plot booking till the balloting or plot allocation.
• Advance income tax on the property can be paid in installments.
• Your annual income may also be one of the factors in calculating your advance tax
• One should try to consult an experienced tax advisor while paying it to avoid any kind of miscalculations.

Federal Excise Duty

Federal Excise Duty(FED), applied this year, is the amount to be paid on booking, allotment, or transfer of commercial or residential property.

• Federal Excise Duty on allotment or transfer of Commercial property is 5%.
• While FED for allotment or transfer of residential properties will also be 5%. It is important to note here that the FED for the residential property shall be applied to the first owner. It means that whenever you book a residential plot in any housing society, after paying the down payment, you will have to pay 5% FED to the government.

Capital Value Tax

CVT is imposed on transferring and selling immovable properties like houses, buildings, and land. The Federal Board of Revenue (FBR) finalizes the rate of CVT, which can be different under property type. It must be noted here that the Capital Value Tax is usually applicable to the buyer of any immovable residential or commercial property.

The Capital Value Tax rate for the year 2024-2025 is set constant at 2% of property value and depends upon the purchase agreement following the Federal Act 2006.

How to Calculate Tax on Your Property?

Now you must be wondering about the rate or percentage of tax applicable to your property, so let’s make things easier for you.

As a matter of fact, every kind of property in Pakistan is generally registered as per the DC rate of the respective area or region, which is set by the provincial government of each province. So to calculate the tax on your property, you need to check out the DC Rate list 2024, of your respective District or Tehsil.

How to Pay Property Tax to FBR in Pakistan?

Property taxes can be paid by visiting the FBR official website or the local office for property tax. Moreover, FBR enables the property owners to calculate the property tax by considering the location and size of the property. You can make the annual payment of tax on property in Pakistan in the following formats:

• Online Banking
• Cheque
• Demand Draft

How to Apply for Property Tax Records?

Makaan Solutions advises you to keep a record of paid property tax bills. Following are the must-have documents you need to present to know your property tax record:

• Applicant CNIC copy
• Proof of already paid taxes
• Registered property ownership papers approved by the court

Impacts of Property Taxes 2024 on Housing Societies

Considering all the above-stated property taxes on all kinds of property, it is affirmed that the budget 2024-2025 will create a strong impact on the real estate market. These property taxes are a blessing in disguise in various ways.

Positive Outlook

However, it must be kept in mind that all the property taxes are calculated as per the DC rates, which are relatively lower than the fair market value or the FBR value. The DC rates list shows that there is no such residential property worth more than 50 million, not even Bahria Town or DHA. So, while calculating the taxes, the tax percentage set by the FBR shall be discounted, providing a sense of relief for the buyers as well as sellers.

Downside of the Property Taxes

Besides, here are some of the major concerns that can negatively impact the real estate market.

Less Demand

There will be a decreased demand for transactions in real estate because of an increase in withholding taxes. Buyers, especially non-filers, will hesitate to invest in real estate. 

Effect on Property Prices

The property can go downward because of new taxes because sellers hesitate to buy properties at high rates to adjust taxes. 

Buying Intention

The buyers will try to deal with the filers due to the tax rate, which affects the real estate market.

How to Calculate Your FBR Property Tax in Pakistan?

FBR calculates the tax on the overall rental value of a property. The formula for calculating the tax on property in Pakistan is mentioned below:

Property Tax = (Rental Value of Property * Tax Rate) / 100

Property Registration Tax in Pakistan

The property owners need to pay the real estate property registration tax. It relies on the time of purchase and the value of the property at the current time. The provincial revenue departments are responsible for collecting the property registration tax.

Importance of Paying Property Tax to FBR in Pakistan

• Legal responsibility of every property owner
• Collected property tax will be used for the development of local infrastructure
• Failure to pay taxes will result in legal actions and penalties 
• Transparency in the real estate market
• Revenue generation 
• Compliance and documentation of the economy and cash flow

Final Words

Tax on property in Pakistan has stirred a huge debate in the country regarding the future of Real estate. Real estate has always played a crucial role in generating the overall revenue. The recent taxes have positive as well as negative impacts on the overall real estate market. However, irrespective of the overall effect, one must pay their property taxes on time to avoid any surcharges for non-payment.

Tax on Property in Pakistan

Please feel free to reach out to Makaan Solutions for further assistance and details about Tax on Property in Pakistan. Our 24/7 customer service is always available to help you Choose and Book your dream property.

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