Property Tax Rates have been revised and updated at the end of year 2017 by the commissioner and the new taxes were set up as per the deputy Commission (DC) rates. There is a general 5-10% annual flat tax levied on all property which will tend to rise by 2-10 times from the current DC rates according to the Finance Act 2016-2017. The real estate tax rates are classified as per the property value by FBR as,
For both Residential & Commercial property that amounts within the range of Rs.2 Lacs-6Lacs the tax rate is 5% of gross amount exceeding Rs.2 Lacs. For property value Rs.6 Lacs-1 Million the tax imposed is Rs.20, 000+ 10% gross amount exceeding Rs.6 Lacs. Any property value that exceeds Rs 1 Million-2 Million the tax rate levied is Rs.60, 000+ 15% gross amount exceeding Rs.1 Million. For property value that exceeds Rs.2 Million the tax amount payable is Rs.210, 000+20% gross amount exceeding Rs.2 Million.
Withholding Taxes (WHT), Capital Value Tax (CVT), Capital Gain Tax (CGT) and Stamp Duty tax (SD) will also be amended according to new property values set by FBR.
Withholding Tax (WHT)
The threshold of Withholding taxes has jerked up in the current year and applicable on property worth Rs.4 Million or more.
WHT on the Purchase of Immovable Property
The withholding tax for purchasers of immovable property entails the filers & non-filers. The filers are liable to pay 2% of WHT whilst the non-filers about 4% of WHT on the attainment of property.
WHT on the Sale of Immovable Property
The WHT for sellers of immovable property is defined at 1% for filers, 2% for non-filers and nil (0%) WHT on the sale of property after 5 years.
Capital Gains Tax before & After the New Law Amendment
Capital Gains Tax on property is the tax payable to the Federal Government of Pakistan on the profits generated on the sale of property. CGT is deposited at the time of one’s annual tax returns. As per the new law, it will be levied at following rates on property investments in Pakistan.
• 10% of the profit made on the sale of property within 1 year of your purchase.
• 7.5% of the profit made on the sale of property within 2 years of your purchase.
• 5% of profit made on the sale of property within 3 years of your purchase.
• 0% of profit made on the sale of property if the holding period exceeds 3 years, i.e. in 4th year.
• A flat 5% tax rate is levied on all property purchased before 1st July 2016 and sold within 3 years, after which it becomes 0% tax rate.
Capital Gain Tax on Actual Values
Suppose you have purchased a residential plot in Bahria Town, Lahore, the total CGT calculated with given scenarios is as follows,
Assume the Purchase price of the plot was Rs.20 million against the current Sale price of Rs.25 million. The total profit on the sale amounts to Rs.5 million (Rs.25 million – Rs.20 million)
The buyer decided to sell the property in 1 year so the CGT Tax amounts = 0.5million (Rs.5 million x 10%)
Likewise a plot purchased for Rs.20 million and sold for Rs.25 million after 3 years will mean that it was purchased before 1st July 2016 hence a 5% flat rate is levied for CGT Calculations.
Total Profit Rs.5 million and CGT = 0.25 million (Rs.5 million x 5%)
Capital Value Tax
Individuals who buy real property in urban areas or acquire the right to use the property for more than 20 years are liable to pay capital value tax. The tax is levied at 4% on the property’s recorded value and incase no value is recorded the tax is imposed at Rs.50 per square yard of the property.
Land Revenue Rates & Progressive Tax Rates levied by Punjab Agricultural Income Tax Act 1997
According to this Act, the cultivated land is considered to be agricultural income and therefore agricultural income tax was land revenue based on acreage. Later on, the Second Schedule of 2001 introduced progressive rates on Net Income through Section 3 of the Act.
LAND REVENUE RATES IN PUNJAB
The tax rates on land ownership is declared as following,
• 0% Tax for land ownership up to 12.5 acres
• Rs.100/per acre on 12.5-25 acres
• Rs.250/per acre on 26-50 acres
• Rs.300/per acre on 50 acres or more
Progressive Tax Rates (Second Schedule)
• 0% Tax on Income Level less than Rs.80,000
• 5% Tax- Rs.5000 if the Total income does not exceed Rs.1 Lac
• Rs.5000+ 7.5% Tax on over Rs.1 Lac, if the Total Income range is between Rs.1 Lac –Rs.2 Lacs)
• Rs.12,500 + 10% Tax on over Rs.2 Lacs if the Total Income range is between Rs.2 Lacs-Rs 3 Lacs
• Rs.22,500 + 15% Tax on over Rs.3 Lacs if the Total income exceeds Rs.3Lacs
Impact of New Taxes on Real Estate Sector in Pakistan
The impact of new taxes on the real estate market will cause a short-term reduction in value of investments but the market is likely to regain momentum in the long run. Although the property prices have increased by a large proportion of 500% since the year 2010, the installments payment plan offered by developers of Residential & Commercial property prevents any major loss if prices crash.