Property Tax in Pakistan

The obligatory amount that an individual or company is bound to pay to the regional or national government is called a tax. The tax revenues are used to provide social work and services including roads, security, and healthcare to the citizens. The tax paid to the government stabilizes the economy and runs the country. It’s the duty of the government to strictly collect taxes from the citizens. Without tax collection economy of the country can face a severe downfall. Any property you own is an asset of the country, and for that, you have to pay the tax honestly. Property tax is a type of tax.

What is a Property Tax?

The property tax is the fixed amount of money that a property owner has to pay to the government. The taxes allow the government to operate financially. The tax money is utilized in several areas, which include building infrastructure, importing goods, and paying for welfare services to the citizens.

When we talk about property tax it does not only includes a tax on your home but it includes a tax on each material thing you own. It could be your car, the farm you may own, the office you build, and any other related assets.

The property tax is different for everyone.  It actually depends upon your income. This rule helps to keep the balance between different classes of society. The property tax is different in different cities in the country. The taxes are in a format, that is easily understandable for everyone.

Different Types of Property Taxes in Pakistan

There are 3 different types of property taxes in Pakistan which are as follows:

1. Capital Gains Tax:

Capital Gains Tax is a tax that a seller pays to the federal government. If a seller sells the property and gains a profit he has to pay a tax from this profit. Finance Act 2017 clearly mentions that this tax is only applicable to the property which is being sold three years after the purchase. The rate of taxation varies depending on the year of you sell the property. The tax is 10% in the first year, 7.5% in the second year and 5% in the third year. The FBR evaluation table will estimate the gains according to the fair market value. The property which you keep for more than three years does not fall in the category of Capital Gains Tax.

Capital Gains Tax
Capital Gains Tax

2. Capital Value Tax:

The tax a person has to pay after buying a property is called Capital Value Tax. This tax is added to Finance Act in the year 2006. Capital Value Tax is 2% of the total amount a person spends on buying a property. You have to pay this tax to the government while buying any property. The tax is also applied on the property’s documentation which is termed as ‘Stamp Duty.’ This amount is applied to 3% of the legal documentation of the property.

Capital Value Tax
Capital Value Tax

3. Stamp Duty:

Stamp duty is the specialized tax that applies at the time of purchase of the property, while the documentation procedure. You need to attach a revenue stamp on your documents which shows that already paid the tax and cleared the legalities.  This makes the process legally convenient. The modern versions of paying taxes do not longer require the actual stamp on the documents.

Stamp duty
Stamp duty

4. Withholding Tax or Advance Tax:

Withholding tax or advance text is actually the combination of both Capital Gain Tax as well as Capital Value Tax. It is the tax that both buyer and the seller have to pay. Whether you are a seller or a buyer you have to pay this tax after finalizing the deal property.

The Tax percentage divides between both parties while paying withholding tax. If the buyer is a filer withholding tax applies 2% of the total worth of the property if the buyer is a non-filer, this tax hikes up to 45% of the total worth. This massive difference between the tax amount of filers and non-filers exists to ensure that property buyers should be tax filers.

The same rule applies to sellers. If the seller is a filer, he would pay a 1% tax, but if he is a non-filer, the tax would be 25%.

The Budget 2018-19, abolished the FBR rates. Under this budget, the sellers would no longer pay Withholding tax and there the terms and conditions for the buyers would also change. As a consequence, the government also formed the DGIP (Directorate of Immovable Property). The purpose of its establishment was properly stated in the 2018 Finance Act. Furthermore, the Act stated that DGIP would be responsible for conducting geo-maps of all kinds of properties in all types of housing projects. In addition, it will also be in charge of determining the value of properties. Also, it will track the dodging ways where there is possible to evade property tax, particularly the withholding tax.

Withholding tax
Withholding tax

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Who has Property Tax Relaxation?

You can have tax exemption in the following cases:

  • Tax does not apply on the 5 Marla residential house that is not in category ‘A’.
  • In addition, if the property’s rent does not exceed PKR 4,320, it will not include in the tax category.
  • If a house has rent as small as PKR 6,480, that the owner uses for the residence too, the tax will not apply in this case.
  • Any kind of property which includes a building or home in the name of a widow, an orphan, or a disabled person with a rent of PKR 12,150 has tax exemption.
  • Moreover, the property that a government or semi-government authority owns like a corporation, municipality, or some town committee doesn’t have to pay tax.
  • Any property up to 1 Kanal that a government servant owns excludes from tax payment.
  • Also, any religious places, parks, schools, hospitals, boarding, and libraries do not come under any tax category.
  • If the rent of any property goes to a charitable institution, it will stand tax-free.

How To Pay Taxes

Following are the way through which you can pay property taxes in Pakistan:

Tax Collection Department

There is a tax collection department in each province of Pakistan through which you can conveniently pay taxes just by consulting the respective tax department. They will advise you on the simple procedures through which you can pay the taxes.

Tax Collection via Banks

You can also pay your taxes easily through your bank accounts. You can also generate an online tax challan which is proof that you have paid your property tax. Also, it is a convenient method.

Online Banking System

You can also take the advantage of an online banking system for paying taxes. You can conveniently make the payments this way.

Calculate your property tax

To calculate the property tax the Government of Pakistan provides a platform for you to calculate the exact amount of tax to benefit the property owners where you can calculate your tax by adding details. You can access the site here: property calculator.

Conclusion

Whether you own a small property or a big one you should be a responsible citizen and pay all your taxes on time. You should closely look into the details and pay those taxes which are applying to your assets in any way. This is how you build the economy of your country. The property tax applies to all private or government sector buyers as well as sellers.

FBR takes strong action against those people who are not paying the applied taxes. Recently, it has become really convenient to calculate your property taxes and pay them through banks, or online transfers.

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