Budget 2024-25: Real Estate Property Tax In Pakistan?

Budget 2024-25: Real Estate Property Tax In Pakistan? Pakistan’s real estate sector has grown significantly during the last few years. Due to urbanization and city growth, property ownership has become a significant source of income for many individuals and families. Nevertheless, tax payment is a duty that comes with owning property. Property tax is one of the most important sources of income for the Pakistani government.

In Pakistan, you must pay property tax to be a responsible citizen. This tutorial is for you if you have just invested in Budget 2024-25: Real Estate Property Tax and want to know more about filing taxes. In Pakistan, a property tax is a set sum of money you must pay the government on your property. The taxes you pay assist the government in constructing infrastructure, initiating new initiatives, and boosting the nation’s GDP.

With the release of the Budget Speech 2024–25, the Pakistani government modified the tax laws about the real estate industry. The segmentation aims to promote investment in some regions of the real estate sector in Pakistan while inhibiting it in others. On the other hand, having property entails having to pay taxes. One of the primary sources of funding for the Pakistani government is the property tax. We’ll discuss the FBR tax, the property tax computation process, and whether or not it benefits the Budget 2024-25: Real Estate Property Tax industry as we examine Pakistan’s current property tax position for the 2024–2025 fiscal year in this post.

What Is Property Tax In Pakistan?

Property taxes in Pakistan are levied at the provincial level and determined by the property’s annual rental value, per the local Urban Immovable Property Tax Act. There is a different tax rate in each province. There is a one-time fee or a percentage of the annual rental cost. All it shows is how much the government believes would have been paid in rent if the building had been rented out. Each province has a different tax rate depending on whether a property is utilized for personal or rental income.

Note: Zakat is not regarded as a property tax under the rules. They are regarded as distinct entities.

Tax Calculation on Rental Value in Punjab

The Department of Excise, Taxation & Narcotics Control in Punjab states a 5% yearly rental value tax on all the properties rented out to gain rental income. All the properties in this category are evaluated according to their land area, property size, and type of property (residential or commercial). It is also considered that either the properties are entirely rented out or partially, i.e., the owners occupy one portion, and the other is rented out.  

Tax Calculation on Rental Value in Sindh

The Sindh Excise, Taxes & Narcotics Department claims that taxes are still due on the property whether or not it is rented out. A rate of 25% of the property’s yearly rental value is applied to the tax.

Most recent update: Punjab Implements New Budget 2024-25: Real Estate Property Tax Transactions in 2024 

Resource by Punjab Land Record Authority (PLRA) 2024!

Types of Taxes in Pakistan

There are total 3 types of taxes in Pakistan:

• Capital Value Tax(CVT)
• Withholding Tax 
• Capital Gain Tax 

Capital Value Tax(CVT)

In Pakistan, the Capital Value Tax is a tax imposed on the sale or transfer of immovable property, such as land, buildings, or houses. The rate of Capital Value Tax is determined by the Federal Board of Revenue (FBR) and can vary depending on the type of property being sold or transferred and the amount it is being sold for. 

According to the Federal Act of 2006, the Capital Value Tax rate in Pakistan is fixed at 2% of the property value at the time of the purchase agreement. However, some individuals choose to avoid paying the total amount of tax by only declaring the DC rate of the property instead of its actual market value. This practice of undervaluing the property helps individuals pay lower Capital Value taxes.

Withholding Tax Revision

The government has revised the Withholding tax for all three segments of the real estate sector. The withholding tax is a tax that is deducted at the source on the payment made for purchasing or transferring a property. The revised withholding tax rates were applicable on July 1, 2023. The new rates are as follows:

• Plots and Files Sector: 1%
• Construction Sector: 1.5%
• High Rise Apartments: 2%

Capital Gain Tax Revision

Capital gain tax is a tax imposed on the profit earned from the sale of a capital asset. In Budget 2024–25, the government revised the capital gain tax and its implications for all three segments of the Budget 2024-25: Real Estate Property Tax. The new Capital gain tax rates are as follows:

• Plots and Files sector: 5%
• Construction Sector: 10%
• High Rise Apartments: 15%

For Plots/files, CGT will only be applied if the property is sold before six years. After the 6th year, the property is exempt from CGT. The tax rate varies depending on the holding period:

• 15% for a holding period of less than 1 year.
• 12.5% for a holding period of 1-2 years.
• 10% for a holding period of 2-3 years.
• 7.5% for a holding period of 3-4 years.
• 5% for a holding period of 4-5 years.
• 2.5% for a holding period of 5-6 years. 
• If the holding period exceeds six years, no CGT will be applied.

For Houses/built-up properties, CGT will only be applied if the property is sold before four years. After the 4th year, the property is exempt from CGT. The tax rate varies depending on the holding period:

• 15% for a holding period of less than 1 year.
• 10% for a holding period of 1-2 years.
• 7.5% for a holding period of 2-3 years.
• 5% for a holding period of 3-4 years.
• If the holding period exceeds 4 years, there will be no CGT applied.

For Apartments/high-rise properties, CGT will be applied at a rate of 15% for the first year and 0% from the second year. The tax rate varies depending on the holding period: 

• 15% for a holding period of less than 1 year.
• 7.5% for a holding period of 1-2 years. 
• If the holding period exceeds 2 years, there will be no CGT applied.

Economic And Job Creation

Its connection use often identifies a premium website. Budget 2024-25: Real Estate Property Tax is more valuable when it is close to major transportation hubs, roads, and public transit systems. Easy proximity to retail malls, healthcare facilities, schools, and recreational areas all add to a location’s desirability. When choosing a home, purchasers prioritize convenient transportation options and proximity to essential facilities, increasing the appeal and demand for homes in well-connected areas.

Revised Withholding Tax in Budget 2024-2025

The revised rates for withholding tax on the sale or transfer of immovable property have been updated by the government of Pakistan in the Budget 2024-25: Real Estate Property Tax. An increase in the withholding tax under the Finance Act 2023 is announced, which will be paid by the purchaser and seller of an immovable property before the transfer of ownership. According to the changes in section 236C, filers of income tax returns will now be required to pay a higher withholding tax of 3%, previously 2%. Non-filers, on the other hand, will face an increased withholding tax rate of 6%, up from the previous 4%.

Similarly, the withholding tax rates for the purchase or transfer of immovable property have also been adjusted under section 236C. Filers will now need to pay 3% in advance tax, compared to the previous rate of 2%. Non-filers, however, will be subject to a significant rise in the withholding tax rate, which has been increased from 7% to 10.5%. Let’s consider an example to illustrate the revised withholding tax rates for the sale or transfer of immovable property. Suppose there is a property with an FBR (Federal Board of Revenue) value of 1 crore with the revised rates:

• Filer: The filer would now pay 3% of the property value as withholding tax, which amounts to 2 lakhs (3% of 1 crore). This is an increase from the previous rate of 2%.
• Non-filer: The non-filer would pay 6% of the property value as withholding tax, which amounts to 5 lakhs (6% of 1 crore). This is an increase from the previous rate of 4%.
• So, as per the revised rates, a filer would pay two lakhs in withholding tax, whereas a non-filer would pay five lakhs for a property with an FBR value of 1 crore. 

Budget 2024-25: Real Estate Property Tax In Pakistan?

The 2024–25 budget, which the government of Pakistan recently announced, has a significant impact on the real estate sector. The budget has introduced several changes to the property tax system, including an increase in the tax rate for commercial properties. Along with an introduction of a new tax bracket for properties valued over PKR 50 Million. 

By increasing the tax rates, the FBR seeks to ensure a fair and transparent taxation system in line with the national fiscal objectives. These changes are expected to increase the revenue generated from property tax and provide a boost to the Budget 2024-25: Real Estate Property Tax. The impact of the revised withholding tax rates on the real estate sector can vary depending on several factors. Here are some potential effects:

• Reduced demand: The increase in withholding tax rates for both filers and non-filers may lead to a decrease in demand for real estate transactions. Higher tax burdens can deter potential buyers, especially non-filers, from investing in properties.
• Impact on property prices: The increased tax rates could put downward pressure on property prices. Sellers might need to adjust their pricing strategies to attract buyers who are now subject to higher withholding tax rates. This could lead to a slowdown in the real estate market.
• Shift in buyer behaviour: Buyers may prefer dealing with filers instead of non-filers due to the lower tax rates applicable to filers. This preference could impact the market dynamics, potentially reducing transactions involving non-filers.
• Increased tax revenue: Higher withholding tax rates have been introduced with the aim of increasing tax revenue for the government. If successful, the increased tax collections could contribute to government funds for various developmental initiatives.
• Compliance and documentation: The revised rates may encourage non-filers to become filers in order to avail of the lower withholding tax rates. This shift could lead to an increase in tax compliance and a greater emphasis on proper documentation of real estate transactions.

Annual Property Tax Calculation in Pakistan

In Pakistan, annual property tax is calculated based on the size and location of the property. The Federal Board of Revenue (FBR) has introduced various categories of properties, including residential, commercial, industrial, and agricultural. The tax amount for each category is different, and it depends on the location, age, and type of property. For instance, a residential property located in a high-end area would be taxed at a higher rate as compared to a similar property located in a less developed area.

In order to calculate the property tax, the FBR has introduced a formula based on the rental value of the property. The formula is given in the above-given information. Once the property tax has been calculated, the next step is to make the payment. The payment of property tax can be made through the official website of the FBR or by visiting the local property tax office. The payment can be made in the form of the following:

• Demand Draft
• Cheque
• Online Banking

The Future of Property Tax in Pakistan

The real estate sector in Pakistan is growing at a rapid pace, and the government is constantly looking for ways to increase its revenue from the industry. In the future, it is expected that the government will introduce new measures to make the property tax collection process more efficient and to increase the revenue generated from property tax.

Wrap Up!

Budget 2024-25: Real Estate Property Tax is a crucial source of revenue for the government of Pakistan, and it is the responsibility of property owners to pay the tax. The calculation and payment of property tax is a straightforward process, and the government has introduced various measures to make the process easier for property owners.

The Yard Marketing has compiled a guide about the future of property tax in Pakistan looks promising, with the government expected to introduce new measures to increase revenue from the sector. Property owners are advised to keep themselves updated on the latest developments in the field of property tax and to make their payments on time to avoid any penalties or legal consequences.