By Taxes are the financial backbone of any country. A country can only develop, prosper, or even meet its basic expenses if the masses stop paying taxes. Being a responsible citizen, it is the responsibility of individuals to pay their due taxes.
Like other countries across the globe, Property Taxes in Pakistan are one of the primary forms of government that generate revenue.
What is Property Tax in Pakistan?
Property tax is a tax levied by GOP on real estate held by an individual or an entity, such as a corporation/business.
The property tax includes more than just your house. The property contains all your real estate, such as any plot in your name, a residence, an office building, a farm, and the like.
Like the regular year, a tax year consists of 12 months; it starts on the 1st of July and ends on the 30th of June of the next year.
The government sets certain property tax brackets, and every individual that falls under that bracket is obliged to pay it; otherwise, the government bodies have the authority to act against such individuals.
Types of Property Tax in Pakistan
Property Tax in Pakistan is a broader topic, and there are several types of this tax.
1. Capital Value Tax (CVT)
This tax applies to everyone who buys the property, and its value is equivalent to 2% of the capital value of an acquired asset according to Finance Act, 2006
When someone transfers property as a gift or inheritance, this tax doesn’t apply. On the other hand, the transfer of property to someone unrelated by blood must pay this tax whether the property was obtained as a gift or a transaction.
2. Capital Gain Tax
A profit is made when a property is sold. This profit is referred to as capital gains. For this, the federal government imposes a % of the property’s ownership duration to determine this proportioning. As a result, property held for more than three years is free from capital gains tax.
For the fiscal year 2022-2023, here is the breakdown of CGT.
- Plots/files: CGT will apply if you sell a plot before 6 years and are exempted after the 6th year.
- 15% CGT when the holding period does not exceed 1 year.
- 5% CGT where the holding period exceeds 1 year but does not exceed 2 years.
- 10% CGT where the holding period exceeds 2 years but does not exceed 3 years.
- 5% CGT where the holding period exceeds 3 years but does not exceed 4 years.
- 5% CGT where the holding period exceeds 4 years but does not exceed 5 years.
- 5% CGT where the holding period exceeds 5 years but does not exceed 6 years.
- 0% CGT where the holding period exceeds 6 years.
- House/built-up property: CGT will apply if you sell a house before 4 years and are exempted after the 4th year.
- 15% CGT where the holding period does not exceed 1 year.
- 10% CGT where the holding period exceeds 1 year but does not exceed 2 years.
- 5% CGT where the holding period exceeds 2 years but does not exceed 3 years.
- 5% CGT where the holding period exceeds 3 years but does not exceed 4 years.
- 0% CGT where the holding period exceeds 4 years.
- Apartment/highrise: 15% CGT will apply for the first year and 0% tax from 2nd year.
- 15% CGT where the holding period does not exceed 1 year.
- 5% CGT where the holding period exceeds 1 year but does not exceed 2 years.
- 0% CGT where the holding period exceeds 2 years.
3. Withholding Tax
With the two taxes mentioned prior, Withholding Tax (WHT) is critical. It is a government tax paid to the Government of Pakistan by purchasers and sellers in every real estate transaction.
The dividend withholding tax rate is 12.5 percent if the beneficiary files a Pakistan tax return and 20 percent if the recipient is non-filer
Royalties and fees for technical services paid to non-residents and overseas Pakistanis (who do not have a permanent presence in Pakistan) are subject to a 15% withholding tax.
Final Words
Depending on the province, the tax bracket may be different. And in provinces, the tax rates can differ depending on the rural and urban areas. Generally, there is no tax on properties under 5 Marla.
As responsible citizens, it is the responsibility of every Pakistani to pay all their taxes to make our country prosper.
