Owning a property is not easy, it comes with a lot of responsibilities. Whether it’s the maintenance or paying an annual property tax, investing in real estate demands a lot of attention. Before one decides to invest in real estate, it’s important to get familiar with important laws and policies. That usually involves a variety of taxes too. Property taxes in Pakistan are as influential as anywhere else. However, instead of being intimated by these percentages and numbers, let us try to understand them. Hence, the A-team is bringing you an elaborate guide to understanding property taxes in Pakistan. You must keep in mind that the definition of these taxes is according to the latest government policies.
1- CGT- Capital Gains Tax
Capital Gains Tax is owed by the seller to the federation. It is one of the most popular property taxes in Pakistan. The cycle goes something like this: the owner sells a property, receives the profit, and the tax is applied to the said profit received. In legal terms, a capital asset is gained through the sold property and the capital gains are taxed. FBR’s valuation table determines the value of capital gains through a reasonable market price. CGT applies to properties that have been owned for less than three years. Properties that have not been sold for four years are not liable to pay this certain tax. The tax rate keeps decreasing in the following selling order: 10% for the first year, 7.5% for the second year, and 5% for the third year.
2- CVT- Capital Value Tax
This one falls under the purchase category of property taxes in Pakistan. Owning real estate is no joke in Pakistan. You must pay a variety of taxes to claim ownership of a property. Capital Value Tax is paid when buying a property and is labeled as a form of provincial tax. The current rate of CVT is 2% as determined by the recent government policies. This means that 2% of the original amount is what the buyer will owe the government. CVT mainly depends on the market value of all types of real estate. Another form of tax linked with CVT is the Stamp Duty tax. Stamp Duty is paid in exchange for the documentation of the property’s ownership. It amounts to be 3% of the total price. The 3% of stamp duty is paid along with 2% of CVT while purchasing any form of real estate in Pakistan. So a total of 5% tax must be paid when buying a property in Pakistan.
3- WHT – Withholding Tax
So far, we know that CGT is paid by the seller and CVT is paid by the buyer. Another type holds equal importance among all the property taxes in Pakistan. It is the Withholding Tax. It is the combination of the two taxes stated above. WHT is a tax paid by both parties of the deal to confirm the transfer of property. However, there is a great advantage of being a tax filer when it comes to such matters. Considering the buyer, if the one purchasing is a filer, the WTH will be 2% otherwise it will be 4%. Similarly, if the seller is a filer, they would have to pay 1% WTH, if not, the tax rate will be 2%.
How Are Property Taxes Calculated?
The annual worth of land or real estate determines the property tax that comes with it. Each province uses a different rate to calculate the property tax. For example, while Punjab taxes properties at 5% of the annual value, Sindh taxes a whopping 25% of the annual worth a property has. Once you have got the annual value, calculating the property tax is super easy. By keeping the measurements described by the valuation table, property tax can be calculated using the following metrics: Per Square Yard Rent, and Per Square Foot Rent. The formula can be designed in this way:
a. Total Land x Per Square Yard Rent = L
b. Total Covered Property x Per Square Foot Rent = C
Now adding L into C and multiplying it with 12 will leave us with the Gross Annual
Rental Value (GARV). Taking 10% out of the total GARV will leave us with the annual
value which can be used to calculate the property tax.
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