Property Tax in Pakistan: Everything You Need To Know
What is Property Tax?
As per the Urban Immovable Property Tax Acts of each province, the government is obligated to collect tax on immovable assets also known as Property Tax. Property Tax in Pakistan can be collected at a flat rate or it is calculated on the Annual Rental Value of the property. \It is important to understand that the annual rental value is not calculated only if the building is rented out but the government can assess the property value based on the expected rental income that the building can generate annually. Moreover, tax rates can vary from province to province. There are four bases for assessing a property, i.e., residential, commercial, locality, and occupancy status.
Types of Property Tax in Pakistan
There are different types of property tax in Pakistan:
- Capital Gains Tax (CGT)
- Capital Value Tax (CVT) and Stamp Duty
- Withholding Tax or Advance Tax
Capital Gains Tax (CGT)
CGT is a federal tax that is to be paid at the time of sale from the seller’s side. This tax applies to the Capital Gain on the Asset being sold by the seller. Capital Gain is known as the profit that the person earns from selling an asset at an appreciated price. The tax will be calculated on the profit of the property sold and not on the overall value of the property. There are some conditions related to CGT according to the Finance Act:
CGT will be calculated only if the property is being sold within the three (3) months of purchase
- The tax rate for the First Year will be 10%
- The tax rate for the subsequent year will be 7.5% and the third year will be 5% only
- The Capital Gains Tax will be calculated according to the Fair Market Value according to the Federal Board of Revenue (FBR) Valuation Table
- It is important to note that the seller will not be liable to CGT if the property is being sold after three (3) years of purchase.
Also read: Federal Government Imposes New Taxes on Real Estate in Fiscal Budget 2022-2023
Capital Value Tax (CVT) and Stamp Duty
Capital Value Tax (CVT) is a provincial-based tax and it is to be levied on 2% of the property value, hence the name Capital Value Tax. This 2% of the property value is according to the Finance Act of 2006. CVT is applicable at the time of purchase but there are certain conditions where this tax is also applicable, e.g.
- Gift
- Exchange
- Relinquishing the Rights on a Property
CVT does not apply to any sort of inherited property as it is passed on from one generation to another by a blood relative.
Stamp Duty is to be paid at a rate of 3% on the property value. It was considered that the total Stamp Duty and CVT to be brought down to 1% but it was never implemented by any province in the country. Stamp Duty is required for any sort of documentation that is required for the transaction of the property.
Withholding Tax or Advance Tax (WHT)
Withholding Tax (WHT) applies both to the seller and buyer and this tax is collected by the Federal Government. The WHT rates are different for filers and non-filers. This step is taken to encourage people to file their taxes every year and reap the benefits of a tax filer.
If you are purchasing the property, you will be liable to only 2% WHT as a filer but as a non-filer, you will have to pay 45% in WHT.
Similarly, the tax rates differ for the seller as well. 1% of the property value is to be levied in case of a filer and 25% of the property value is to be given in case of a non-filer.
You can always avail the online services of the federal and provincial governments to calculate the tax on your property. This will give you an accurate figure of the property tax that is to be submitted by you to the concerned government.
Documents Required for Property Tax Application
- Application duly filled by the Registered Owner of the Property with Court Fee Proof
- CNIC of the Applicant (Copy)
- Transaction History in case of Property Tax Paid Earlier (Proof of Payment)
Assessment of Property
You are required to assess all your tangible assets for Tax Calculation purposes. Assessment of Property is done on either of two bases, i.e., Occupation Status and Type of Building. Property Tax will be calculated upon the complete assessment of the property and analyzing its value
Time for Tax Payments
It is important to understand that the tax needs to be paid on time and within 30 days in case a demand notice is received by the liable person. Usually, the tax is paid on or before the 30th of September every year. You can deposit tax in the Treasury or the State Bank or any dedicated branch of the National Bank of Pakistan.
Rebate and Surcharge
Rebate is the amount that is returned to the taxpayer if they have paid an extra amount in tax, rent, or any other utility. The government will be obliged to pay a 5% rebate only if the person has paid their tax before or on the 30th of September.
If the person defaults to pay their taxes in due time, that person is liable to a 1% surcharge that will be increased at the same ration on every 1st of the month from 30th September and onwards.
Properties Exempted from Tax
You need to understand that not every property is liable to tax and there are certain exemptions in our country’s tax collection system. Following are the properties that are exempted from the tax collection:
- If your house is of size less than 5 Marla, it is exempted from the tax
- If the building is being owned by Orphans, Widows, or Physically Challenged Person
- If you are a serving or retired Federal or Provincial Government Employee
- Any Building owned by the Government or any
- Building owned by Municipality, and Town Committee.
- Religious Buildings (Mosques etc.)
- Public Parks, Hostels, Schools, Colleges, Playgrounds, Libraries, and Hospitals
- Rental properties of which rent goes to a charitable organization are exempted
Tax Payment Process
You can choose from either of the procedures mentioned below:
- You are required to contact the provincial tax department in your city and seek further assistance. Deposit your tax amount in any tax collection department intimated by the tax department in your city.
- Property Tax Challan forms are available online.
- You can either pay tax online or go to your nearest bank to deposit Property Tax.
How to Calculate Tax?
Many people confuse their property taxes and are not able to calculate them properly. There is an easy method to calculate property tax in Pakistan. There are online portals where you can calculate your property tax by just entering the value of your property. Such as, the Punjab government has provided online tax calculators in the province. A similar online tax calculation portal by the Sindh government.
You will be presented with different options as people usually confuse Zakat and Property Tax. You will be required to enter the value of your property and the figures for your property tax payments will be presented to you.
Urban Immovable Property Tax
The tax collection rates and systems may vary from province to province. A system that is applicable in Punjab may not viable for any other province and vice versa. Urban Immovable Property Tax in Punjab is according to the Punjab Urban Immovable Property Tax Act 1958.
Similarly, information on Urban Immovable Property Tax in Pakistan can be calculated online from the comfort of your home for any province nowadays.
Paying Tax is our mutual responsibility
- Tax collection is important to run the operations of a country and property tax is taken against the value of the property and in return, the government provides benefits to the people.
- It is important to understand that the tax needs to be paid on time. Property tax in Pakistan is paid on or before the 30th of September every year.
Relevant:
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