Property Tax in Pakistan – A Complete Guide to beginner

Tax

Tax is a compulsory payment to be made by every citizen of Pakistan. It is a charge laid upon persons or the property for the support of a Government. The government decides the rates and the items on which tax should be imposed, like income tax, GST, etc

Tax can simply be defined as a source of governments revenue. The government uses this money for the development of the country. We should pay our taxes on time so that our economy remains stable. A lot of people avoid paying taxes and hide their assets, by doing so they are only bringing economic instability.

Property Tax

Property tax is a tax levied on land owned by a person or any corporation, etc. the tax imposed depends on the type and size of your property. The amount collected is used to build infrastructure, pay salaries, imports, provide a budget for the defense forces, etc.

The property does not only mean houses or plots but it refers to all your assets such as cars, offices, etc. The current tax percentage is about 25% (imposed in 2020). Moreover following is the list of taxes levied depending upon the holding period:

  1. No CGT to be taxed after 4 years of holding period
  2. The holding period for CGT has been reduced to 4 years
  3. 100% of capital gains to be taxed if the holding period is less than 1 year.
  4. 50% of the capital gains to be taxed if the holding period exceeds 2 years but not 3 years
  5. 75% of the capital gains to be taxed if the holding period exceeds 1 year but is less than 2 years
  6. 25% of the capital gains to be taxed if the holding period exceeds 3 years but not 4 years
  7. There is no difference between plots and any constructed property.

Types of Property Tax in Pakistan

The different types of property taxes in Pakistan are:

  • Capital Gains Tax (CGT)
  • Capital Value Tax (CVT)
  • Withholding Tax or Advance Tax

Capital Gains Tax:

Capital Gains Tax is the amount that the seller has to pay directly to the government. It is to be paid when the seller is selling his/her property. The seller has to pay the tax after a time period of 3 years.

1st-year tax is 10%, 2nd-year tax is 7.5%, and the third-year tax is only 5%

Capital Value Tax:

Capital Value Tax (CVT) are the prices set by the FBR. They are the official rates of the property set by the District Commissioner offices across the country. Previously, they were much lower than the market rates for land. The Finance Act 2006 says that anyone who buys any sort of property has to pay Capital Value Tax. It is 2% of the total amount.

Capital Value Tax:

Capital Value Tax (CVT) are the prices set by the FBR. They are the official rates of the property set by the District Commissioner offices across the country. Previously, they were much lower than the market rates for land. The Finance Act 2006 says that anyone who buys any sort of property has to pay Capital Value Tax. It is 2%of the total amount.

Withholding Tax:

Withholding tax is basically a federal tax paid b both the buyers and sellers on their respective deals. Following is some of the important points to note down;

Who has to pay Tax (Eligibility Criteria):

  • Homebuyers have to pay 2% if they file an income tax return, 4% if they don’t file tax returns.
  • People buying property have to pay WHT, only if the property is more than 4 million pkr.
  • Sellers have to pay 1% if they are tax filers, or 2% if they are non-filers
  • Withholding Tax is to be paid at the time of property deal, when you are registering the sales deed
  • WHT is known to be an ‘advance tax’. This means that it is supposed to be known in advance and is adjustable depending on the buyers’ tax liability and capital gains tax of the seller.

Who Does Not Pay Tax:

  • A residential house on a land area less than 5 Marla
  • If the annual rent is not more than Rs 4320.
  • A single unit house rented at Rs 6480
  • Buildings owned by government or semi-government authorities.
  • Single property owned by a government servant with size upto 1 Kanal
  • Mosques and Religious Institution
  • Parks, Schools, Hospitals, Libraries and Boarding.
  • If any property’s rent is dedicated to the religious or charitable institution
  • Property owned by widows, orphans or disabled persons with rent upto Rs 12,150.

How to Pay Your Tax:

You can pay your taxes via any of the following methods:

Via Banks:

You can pay your taxes through banks. You can get challans online and pay your tax amount.

Tax Collection System:

Every province has its own tax collection department, therefore, making it easy to pay taxes. All you have to do is contact the department and they will give you a series of instructions with the help of which you can pay your taxes.

Online Banking:

Online banking has really helped everyone a lot. You can make transactions and pay your bills while sitting home chilling in front of a television enjoying your leisure time. Not only this you can do your payments from anywhere in the world in the blink of an eye. You can also pay your taxes using online banking.

Conclusion:

As a responsible citizen of the Islamic Republic of Pakistan, you are bound to pay your taxes on time. Only by doing so will Pakistan reach its full potential in terms of an economy. Taxes are applied to every property you buy whether you have a government job or a private one. If you choose to avoid taxes strict action will be taken against you. FBR was developed for this sole purpose and punishes those who do not pay their taxes.

So, all in all, if we want to make a better, stable, and much more successful Pakistan we should all contribute to this matter because we are the future of our country.

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