Paying real estate taxes is similar to going to the dentist. It is essential although you aren’t pleased about it. However, if one is trying to find a way of not paying property taxes, he might get into conflict with the Federal Board of Revenue(FBR). FBR gets the information – every detail about your income, the investments you have made and real estate transactions. In short, all kinds of more information about money matter. FBR will take some time to match up the income with the filed tax returns, and if there is a depreciation, they will send the notice, charge you a penalty fee, or freeze your assets.
The Federal Board of Revenue (FBR) realized that there is a massive gap between rates of deputy commissioner and market rate of the said property. Because of this gap, undocumented money circulated in the market. This resulted in tax evasion. Since DC rates were low compared to the actual market prices, real estate transactions usually take place based on rates of DC, while the fact is that the substantial sum of money traded between sellers and buyers is recorded as per the market value. For instance, a 240 sq yd plot with a DC price of PKR 30,000 but a market rate of PKR 70,000 is sold on paper, as it shows value of DC, while the seller receives PKR. 70,000. This slight difference of Rs. 40,000 might be black money. Because of this, neither the income tax departments nor government could identify the total amount of income sellers were making in the real estate sector business i.e. Capital Valley
What is a real estate tax?
The real estate tax in Pakistan is a provincial tax levied on the annual rental value of the property, based on the Urban Immovable Property Tax Acts of respective provinces. Tax rates are different for every area. It is either a percentage of the annual rental value or a flat rate. Rental value does not indicate that the property must be rented out. It simply gives an appraised value by the government of how much they would get rental amount had the building been let out. For each province, the rate of taxation differs depending on whether the property is rented out or self-occupied.
KINDS OF TAX ON REAL ESTATE IN PAKISTAN
When one talks about the taxes on the sale of real estate project in Pakistan, the tax on Capital Gains must be paid on the gain of profits like in Park View City. When the sellers makes profits on their selling property (capital asset), the yield (capital gain) is often taxed. As per the Finance Act 2017, CGT would be levied only, if the property is sold within the span of three years of its purchase. The taxation rate lies around is 10% for the first year, 7.5% if sold during the second year and 5% if sold during the third year. These gains are calculated according to the fair market value based on FBR’s valuation table. Therefore, any property held for more than three years will not make the seller liable for payment of CGT.
Withholding Tax (WHT) must be paid by both purchaser and sellers
Apart from CVT and Stamp Duty, Withholding Tax (WHT) is of utmost significance. It is a federal tax payable by buyers and sellers on a property deal. One must consider following points to:
- Homeowners need to pay 2%, in case of income tax return and 4% if they dont file tax returns.
- People who are purchasing property have to pay WHT only if the property is valued around PKR 4 million
- Sellers must pay 1% if they are tax filers or 2% if they are not.
- Withholding Tax has to be at the time of the property agreement when you are registering the sales deed
- WHT is known as an ‘advance tax’, which means it acts as an advance on other taxes and, hence, can be adjusted into the homebuyer’s tax liabilities and against the seller’s Capital Gains Tax.
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With the help property tax calculator, one may can easily calculate property taxes for 2018-2019 for different provinces from the official websites of the Narcotics Control Department, Excise Taxation, and provincial governments respectively. For more update about taxation, please contact the agents of Estate Land Marketing.
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