Tax on Property in Pakistan

Real estate is a blossoming industry in Pakistan. Therefore, the property is a significant source of income for people. The property owners are responsible for paying taxes. Tax on property in Pakistan is a major source of government revenue in Pakistan.

The government of Pakistan has imposed different taxes, like the FBR tax and the 2023-24 budget tax. Therefore, it has become compulsory for you to know about the calculation of property tax, payment, and registration. Previously, the government has imposed 3 new property taxes in the budget 2022-23.

Types of Tax on Property in Pakistan

The government imposes these 3 types of property tax in Pakistan.

Capital Gain Tax
Withholding Tax
Capital Value Tax(CVT)

Capital Gain Tax on Property in Pakistan

What is the gain tax on property in Pakistan? CGT on property in Pakistan is an imposed tax on the earned profit from selling a capital asset.

Capital Gain Tax has been revised in budget 2023-24, which applies to real estate. You can also explore property tax in Islamabad if you live in the capital city. Gain tax on property in Punjab can vary from other provinces.

The gain tax on property in Lahore also differs from other cities. You can use a property calculator to calculate the Capital Gain Tax in Pakistan.

FBR gain tax on property 2023 varies for different properties.

Plots & Files: 5%
Construction: 10%
Highrise Apartments: 15%

CGT for Holding Plots & Files

CGT will be imposed on the plots and files sold before six years. The properties will be exempt from CT after the 6th year. The CGT varies in accordance with the holding time.

15% for 0-1 year
12.5% for 1-2 years
10% for 2-3 years
7.5% for 3-4 years
5% for 4-5 years
2.5% for 5-6 years

CGT for Holding Constructed Properties

Capital Gain Tax on property in Pakistan will be applied to the constructed properties like houses sold before 4 years. The constructed properties will be exempt from CGT after 4th year. The tax rates vary in accordance with the period for holding properties.

15% for 0-1 year
10% for 1-2 years
7.5% for 2-3 years
5% for 3-4 years

CGT for Holding Highrise Properties/Apartments

CGT will be applied to the apartments and highrise buildings sold before 2 years. There will be no tax on these properties after 2nd year. The details of tax for apartments are as follows:

15% for 0-1 year
7.5% for 1-2 years

Withholding Tax

The withholding tax on property in Pakistan has been revised in the budget 2023-24. It is a tax that is deducted on transferring or buying a property. These revised taxes are imposed from 1st July 2023.

Plots & Files: 1%
Construction: 1.5%
Highrise Apartments: 2%

Capital Value Tax(CVT)

CVT is imposed on transferring and selling immovable properties like houses, buildings, and land. Federal Board of Revenue (FBR) finalizes the rate of CVT that can be different under property type. Property sale tax is also a notable tax for property sellers.

The Capital Value Tax rate is constant at 2% of property value and depends upon the purchase agreement following the Federal Act 2006. People avoid the full tax amount by declaring property DC valuation rather than the actual market value.

Deemed Rental Income Tax

The government imposed a deemed rental tax on property in Pakistan in the 2023-24 budget calculated on the deemed rental income of up to 25 million. A property will be considered a source of rental income even if the property is not rented out.

There is a 10% deemed tax on the rental properties. This tax encourages potential investors to invest in the construction industry rather than highrise apartments and plots/files.

Therefore, you must consider these changes before investing in real estate. Hopefully, you have understood the tax on rental income 2023 in Pakistan.

Revised Withholding Tax in Budget 2023-2024

The government has revised withholding tax for properties in the 2023-24 budget in accordance with Finance Act 2023. This tax is payable by the seller and buyer before the transfer process of ownership for property.

Section 236C states that income tax filers will pay a 3% withholding tax, and non-filers must pay a 6% tax. Filers must pay a 3% tax on purchasing property in Pakistan 2023 or transferring the property, whereas non-filers must pay 7-10.5% advance withholding tax.

The example for understanding the revised rates of withholding tax for a property with FBR value 1 core is as follows:

Filer: The filer has to pay 200,000, which is 3% of 1 crore.

Non-Filer: The non-filer has to pay 500,000, which is 6% of 1 crore.

Impacts of New Taxes on Real Estate Properties in Budget 2023-24

Budget 2023-24 has a crucial impact on the real estate industry because many changes have been made to tax on property in Pakistan with increased taxes for commercial properties. There are also taxes for properties with value over 50 million.

The effects of revised withholding taxes are as follows:

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 be 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.
Increased Tax Revenue: The government will be able to collect a high amount of tax to initiate the development.
Compliance and Documentation: The high tax rates will encourage the non-filers to become filers to get the benefits of lower withholding tax.

FBR Property Tax

FBR is the government department to collect taxes in Pakistan. The property owners must pay to pay property taxes to the FBR every year. Moreover, FBR enables the property owners to calculate the property tax by considering the location and size of the property.

You can make payment of property tax by visiting the FBR official website or local office for property tax.

The Formula for Calculation of FBR Property Tax in Pakistan

FBR calculates the tax on the 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

How to Pay Property Tax to FBR in Pakistan?

You can make payment to FBR can be made in the form of online banking, cheques, and a demand draft through the official website or local office. You are advised to keep a record of paid property 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

Annual Property Tax Calculation in Pakistan

The tax for each category of property is different depending on type, age, and location. The calculated property must be paid to the FBR. You can make the annual payment of tax on property in Pakistan in the following formats:

Online Banking
Cheque
Demand Draft

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.

Future of Property Tax

Real estate is a growing industry in Pakistan, and the government wants maximum revenue from this sector. Therefore, it is expected that the government will introduce transparent ways to boost the revenues of property taxes in the future.

Final Words

Tax on property in Pakistan is collected to stabilize the economy. Therefore, you must explore a complete guide on income tax returns in Pakistan. You can also check Capital Smart City’s new tax policy with the assistance of Makaan Solutions.