Types of Property Taxes and their Definition
Along with income tax and sales tax, there are a number of taxes that one ends up paying as a citizen of Pakistan. However, the most confusing by far has to be the host of property-related taxes which can be overwhelming and confusing for any new entrant to the property market. Following is your guide to the kinds of property taxes and when they are applicable in Pakistan.
The Different Kinds of Taxes
Following are the most important taxes that are applicable on property in Pakistan:
- Property Tax
- Capital Value Tax
- Stamp Duty
- Withholding Tax (or Advance Tax)
- Capital Gains Tax
Property tax is a provincial tax levied on the annual rental value of the property, based on Urban Immovable Property Tax Acts of the respective provinces. The tax rates differ between provinces. However, it is either a flat rate, or a percentage of the annual rental value. Depending on the provinces, the rate of taxation can differ depending on whether the property is rented or self-occupied.
Capital Value Tax (CVT)
The Capital Value Tax (CVT) is another provincial tax and is paid by the buyer at the time of acquisition of property. As the name suggests, it is payable on the capital value of an acquired asset. It is paid when the said asset – in this case, immovable property – is acquired.
If it is a case of inheritance or a gift from spouse, parents, grandparents or siblings, CVT will not be levied. In cases where it is a gift or exchange, or where property value is not mentioned in the transaction, the value of the property is going to be calculated according to DC Rates.
It must be noted that while previously the CVT was levied only in urban areas, according to a news report, it will now also be levied on rural areas that have been developed as well.
Stamp Duty is another tax that is levied by the provincial government and is paid by the buyer at the time of acquisition of property. It is basically a tax required on most legal documents under the Stamp Act 1899. Stamp duty is levied at 3% of the DC rates of the property.
Withholding Tax (WHT)
According to a notice issued by the FBR, Withholding Tax (WHT) is a federal tax payable by both buyers and sellers if the value of property is great than PKR 4 million. WHT is paid by the seller only in case he is selling the property within three years of buying it.
It basically acts as an advance on other taxes and, hence, is also adjustable into the tax liabilities of the buyer and against the CGT of the seller. It has to be paid at the time of registration of the sales deed. Following are the rates of WHT:
For non-filers, 4% of the FBR rates.
For filers, 2% of the FBR rates.
For filers, 1% of the FBR rates and none if sold within five years of purchase.
For non-filers, 2% of the FBR rates.
Capital Gains Tax (CGT)
The Capital Gains Tax (CGT) is a federal tax payable by the seller. When the seller makes profits on selling property (capital asset), it is the profit (capital gain) which is taxed, hence the name. According to the Finance Act 2017, CGT is levied only when the property is sold within three years of its purchase. The rate of taxation is 10% for the first year, 7.5% if sold during second year and 5% if sold during the third year. These gains are to be calculated according to the fair market value, based on FBR’s valuation table. Any property held for more than three years will not make the seller liable for payment of CGT.
These are some of the most common taxes that are applied to the property in Pakistan. If you have any question about these, ask away in the comments.