Types of Taxes Imposed on Real Estate Property in Pakistan
Types of Taxes Imposed on Real Estate Property in Pakistan
Most of the people are not aware of the different taxes imposed on Real estate in Pakistan. This tax imposition can be categorized into different parts as follows;
Capital Gains Tax (CGT)
Capital Value Tax (CVT)
Stamp Duty
Withholding Tax or Advance Tax
WHAT IS A PROPERTY TAX?
A property tax is a levy imposed by the government on real estate. The tax is based on the value of the property, and the amount varies from country to country. In Pakistan, the property tax imposed on both residential and commercial properties.
DIFFERENT TYPES OF PROPERTY TAXES IN PAKISTAN
There are four main types of taxes imposed on real estate property in Pakistan:
Capital Gains Tax (CGT),
Capital Value Tax (CVT),
Stamp Duty,
and Withholding Tax or Advance Tax.
1. Capital Gains Tax (CGT)
The Capital Gains Tax (CGT) on property in Pakistan 2021-2022 a federal tax that must paid by the seller. Capital gains tax imposed when the seller makes profits on the sale of a capital asset, so the profit (capital gain) taxed. In accordance with the Finance Act 2017, the capital gains tax will only imposed if the property sold within three years of purchase. According to FBR’s valuation table, these gains will taxed at 10% during the first year, 7.5% during the second year, and 5% during the third year. Property held for more than three years will not be subject to CGT.
2. Capital Value Tax (CVT) & Stamp Duty
Those thinking about buying property, they will have to pay various taxes when they own the property. The Capital Value Tax (CVT) a provincial tax, which will paid by the buyer when they buy property. Although not formally named, it computed as the net equity (positive or negative) in the company on the date of death. It paid at the rate of 2% as of 2006.
Items transferred as a gift, in exchange, or through relinquishing the rights to property come under Capital Value Tax. Exclusions include property transferred to your parents, spouse, or other blood relatives as a gift or through inheritance. If property value not mentioned, it calculated according to the values shown in the tables of values.
3. Withholding Tax (WHT) paid by both buyers and sellers
Apart from CVT and Stamp Duty, Withholding Tax (WHT) is an important matter. It is a federal tax which both buyers and sellers must pay on a property deal. There are only a few points to take into consideration
Homebuyers will charged an additional 2% on their mortgage interest if they file an income tax return and 4% if they do not file an income tax return.
In order to buy property, a person must pay Capital Gains Tax only if the property costs more than 4 million Pakistani Rupees.
If a seller required to file, then they subject to a 1% tax, or 2% if they not required to file.
Withholding Tax paid at the time of registering the property transaction, as recorded in the sales deed.
Generally, a WHT considered an advance tax, meaning it considered as an advance on taxes the homebuyer owes or responsible for. It can also applied to reduce or cancel out Capital Gains Tax liability that a seller might owe.
As per Budget 2018-19, the following changes made: the abolition of the FBR rates, sellers will no longer have to pay Advance Tax, and buyer rates would change as well. However, in order to ensure that declared values of properties are fair, the government has formed the Directorate of Immovable Property (DGIP). In Finance Act 2018, there was a plan to authorize the office to conduct a geomapping of plots, apartments, and all kinds of housing schemes and projects. This is why it also affects the valuation of the property.
