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Budget 2018-19: The real estate question

Laws & Taxes
3 min read | Muhammad Farhad  | May 10, 2018

On April 27, 2018, Finance Minister Miftah Ismail announced the much-awaited Budget 2018-19. Prime Minister Shahid Khaqan Abbasi had already announced a detailed amnesty scheme and tax reforms package which had set the real estate sector abuzz and sketched the broad outlines of things to come.

Furthermore, to seal the deal, the President of Pakistan had also passed ordinances to the effect, effectively stamping it with the formal legality it needed. However, the ordinances still required the approval of Parliament, so the government included the amnesty scheme and the tax reforms package within the budget itself. Now as far as the legal side of things is concerned, everything is covered.

This piece presents an overview of all the ways that the budget 2018-19 will affect the real estate:

Reforms in real estate sector

  • FBR and DC rates will be abolished.
  • Prices of any property will be considered to be what the buyer and the seller declare.
  • Taxes will be collected on the declared value.
  • Purchaser will pay Adjustable Advance Tax of 1% on the declared value. Adjustable Advance Tax will replace the existing Withholding Tax (WHT) paid by sellers and buyers of property. Adjustable Advance Tax, like WHT, will be adjustable into annual taxes of the tax-payers.
  • Non-filers cannot buy property with declared value greater than PKR 5 million.
  • To discourage undervaluation of property, FBR will be given the right to purchase any property within six months of its registration. It can, however, only be done after paying a certain amount above the declared value.
  • In 2018-19, the amount to be paid above declared value will be 100% more.
  • In 2019-20, it will be 75% above the declared value.
  • From 2020-21 onwards, it will be 50% above the declared value.
  • Provinces will be requested to collect 1% tax under Stamp Duty and Capital Value Tax (CVT) on the declared value, after abolishing DC rates.

Amendments in Income Tax Ordinance 2001 that affect real estate

  • Section 227C will be amended to prohibit purchase of property by non-filers.
  • Section 230F will create a Directorate General of Immovable Property.
  • The Directorate will initiate proceedings for acquisition of property that is suspected to have been undervalued to avoid taxes.
  • The proceedings cannot be initiated after 6 months from the end of the month in which the transfer of property is registered.
  • Section 236K stipulates that the one who registers the transfer of property shall also collect the advance tax at the time of registration.
  • If payment for immovable property is on instalments, then tax can also be paid in instalments.
  • Section 182 empowers the government officials to take hold of the property.

Voluntary Declaration of Domestic Assets Ordinance, 2018

This is the law that primarily legalises the Prime Minister’s Amnesty Scheme. The purpose is to allow undeclared assets to be voluntarily declared with minimal fines. To quote the Finance Minister, “Now that tax rates have been reduced and data-mining methods have been introduced to identify assets, we are providing last chance to declare undeclared assets held inside the country.” Following are some of the salient points of the law:

  • The ordinance supersedes all other laws in Pakistan.
  • All Pakistanis can avail the scheme except public office holders, their spouses, and dependent children.
  • All undeclared domestic assets including open plots, land, super structures, apartments and flats can be declared under the ordinance. For the purpose of tax and penalty payment, these assets will be valued as follows:
  • Open plots or land can be valued at cost of acquisition or FBR rate, whichever is higher.
  • Super structure will be valued at PKR 400 per sq. ft.
  • Apartments and flats will be valued at cost of acquisition or DC rates, whichever is higher.
  • The declarations will be kept confidential.
  • The declaration will be immune from use as evidence against declarant under any law.
  • The ordinance allows time from April 11, 2018 to June 30, 2018.

These are the primary aspects of Budget 2018-19 that affect real estate sector directly. We will soon share a detailed analysis and more opinions on how these changes can affect the real estate sector. What are your views on this? Do you have any questions about it? You can talk to us in the comments section. You can also head to the Zameen Forum for a detailed conversation.

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Muhammad Farhad
Muhammad Farhad is a Content Developer at Zameen.com.

  1. “All Pakistanis can avail the scheme except public office holders, their spouses, and dependent children.”

    So in other words, Nawaz, Maryam and Hassan/Hussain are eligible for this Amnesty scheme since they are NOT public office holders at this point.

    1. No, under the Voluntary Declaration of Domestic Assets Ordinance, 2018, public office holder includes anyone who has held a public office, after or since the year 2000. So they can’t.

      1. I don’t have the actual draft of this bill yet. I am just reading what your shared above in your blog and it doesn’t mention anything about Ex-Public office holders.

        So they seem all eligible as per the information in your own blog.

        1. Here’s the definition as provided in the ordinance:

          “‘Holder of public office’ has been defined under section 2(g) of the Ordinance and inter alia includes any person who is or has been at any time since January 1, 2000:

          (i) President of Pakistan or Governor of any province;

          (ii) Prime Minister, Chairman and Deputy Chairman Senate of National Assembly, Federal Ministers and their advisors or Consultants;

          (iii) Chief Minister, Speaker and Deputy Speaker of Provincial Assembly, Provincial Ministers and their advisors or Consultants;

          (iv) Chief Justice, Judges of Supreme Court and High Courts;

          (v) Persons holding an office or post in service of Pakistan or service connected with affairs of Federation, Province or local council, etc.

          (vi) Chairman, Vice Chairman or Mayor or Deputy Mayor of a Zila Council, a Municipal Committee, etc.”

        2. Note the “includes any person who is or has been at any time since January 1, 2000.”

  2. ANY ONE CLARIFY THAT PUBLIC OFFICE HOLDER INCLUDE GOVT AND BANK EMPLOYEES OR NOT

    1. It will include government employees — all gazetted staff, whether permanent or on contract — but not bank employees.

      This is the exact definition provided in the ordinance: “This Ordinance applies on all citizens of Pakistan except holders of public office, their spouses and dependent children. ‘Holder of public office’ has been defined under section 2(g) of the Ordinance and inter alia includes any person who is or has been at any time since January 1, 2000:

      (i) President of Pakistan or Governor of any province;

      (ii) Prime Minister, Chairman and Deputy Chairman Senate of National Assembly, Federal Ministers and their advisors or Consultants;

      (iii) Chief Minister, Speaker and Deputy Speaker of Provincial Assembly, Provincial Ministers and their advisors or Consultants;

      (iv) Chief Justice, Judges of Supreme Court and High Courts;

      (v) Persons holding an office or post in service of Pakistan or service connected with affairs of Federation, Province or local council, etc.

      (vi) Chairman, Vice Chairman or Mayor or Deputy Mayor of a Zila Council, a Municipal Committee, etc.”

    2. All such office which are being run by public tax-payers money are called public offices.

      Government doesn’t have anything of its own. Everything is given to them by public through payment of taxes. All such offices belong to public and actual name for them is “Public Office”.

      Please stop using term “Government Offices”.

  3. Regarding future of real estate, i am of the opinion that there will be lesser investment in the sector and prices will decrease.

  4. Your artical is still silent about properties status of overseas pakistani who r working and residing outside pakistan. What about law says about their assets and investments in real estate sector.and thay will also need to become tax filer and again pay tax on their assets which they have already purchased on FBR and DC rates. Please help overseas to clear and understand this issue.thanks

    1. Things become clearer when you understand the difference between filing taxes and paying taxes. Basically, the requirement is just to file taxes and wealth statement, to show your assets to the government. So overseas Pakistanis simply have to file taxes for the past two years, for which you need to contact any good accountant here in Pakistan.

      Obviously you will have to pay taxes on the properties. But not on FBR or DC rates, they will likely soon be abolished, as explained in the blog. I hope that clears it up. If you have any more questions, I am here to help.

      1. I am working in gulf since I started working in 2004. I am non filer. So now if I become a filer do I have to show my overseas income or just show NO Pakistani income and be a zero filer? What does the law say?
        As I know foreign income is not taxable for non-residents.

      2. Regarding your answer to Mr. Riaz with respect to overseas Pakistanis, if you mean to file taxes for the past two years, then you need to know that to become a filer you have to have a continued stay in the country for a period of 180 days. And this is not possible for overseas Pakistanis. Maybe, the government will change this rule as well.

        1. To my knowledge, no such law exists, Khilji sab, and I have confirmed with a lawyer as well. Although to be counted as an overseas Pakistani, you have to be out of Pakistan for 180 days. Can you provide the basis of the rule you are talking about?

  5. Hi Farhad thanks for the valuable blog
    however I have couple of quick questions

    1 let’s say I have a property value of 5 karor when I sell it what taxes would I have to pay.
    With the assumption that I am not a tax payer and retired would it be posssible to answer the above question.

    2 what is the T&c around sales agent commission is it 1 % above 1 karor or less

    Many Thanks

    1. There might be other local charges or duties but primarily you will be paying CGT, if you are selling the property within 3 years of buying it. The rate of taxation is 10% for the first year, 7.5% if sold during second years and 5% if sold during the third year.

      There is no law governing sales agent commission. Their commission on sale/purchase is generally 1% but I will get back to you with a specific answer for your question, that is, if the commission changes in case property is valued above 1 crore.

  6. Can I please get detailed calculation of applicable taxes on the purchase of a plot. It would be really helpful if this is explained through an example. Thanks and Best regards

    1. Buyer has to pay Advance Adjustable Tax, CVT and Stampy Duty. Under the new budget, if you are buying a plot worth PKR 1 crore (10 million), you will have to pay 1 lakh Advance Adjustable Tax, and 1 lakh CVT and Stamp Duty.

      However, please note that the provinces are yet to abolish DC rates or to implement 1% CVT and Stamp Duty, so old CVT and Stamp duties are still active and will remain even after the federal budget has passed, until provinces pass their budgets or make the relevant changes in law, which they have not hinted at, so far.

  7. Can you please help me out to determine the transfer fees of a plot worth Rs. 13 million according to new taxation rules. And what should you suggest to buy property right now or after 1st July when the new taxes will be applicable.

    Regards

    1. Buyer has to pay Advance Adjustable Tax (1%), CVT and Stampy Duty (proposed 1%), while the seller has to pay CGT (10%/7.5%/5%). Under the new budget, if you are buying a plot worth PKR 1 crore 30 lakh (13 million), you will have to pay 1 lakh 30 thousand (130,000) in Advance Adjustable Tax, and the same amount in CVT and Stamp Duty.

      CGT will depend on what the plot was bought for. For example, if you bought a plot for PKR 1 crore (10 million) and you are selling it for PKR 1 crore 30 lakhs (13 million) after 7 months of buying it, since you are making a profit of PKR 30 lakh (3 million), you will pay CGT worth PKR 3 lakh (300,000), 10% of the gains. If you are selling it after more than 12 months of buying it, you will pay 7.5% of the gains. If you are selling it more than 24 months after buying it, you will pay 5% of the gains.

      However, please note that the provinces are yet to abolish DC rates or to implement 1% CVT and Stamp Duty, so old CVT and Stamp duties are still active and will remain even after the federal budget has passed, until provinces pass their budgets or make the relevant changes in law, which they have not hinted at, so far.

  8. What the Law says For Overseas Pakistanis if they have to declare their assets in Pakistan and whr you think they should take benefit from this amnesty scheme or they have any amenity as they are physically lives abroad.

    1. They can file taxes and avail the amnesty scheme while abroad. You might have to contact a good lawyer or accountant to assist you with it in Pakistan, however. In any case, you can do a lot of stuff yourself by visiting FBR’s website. Overseas Pakistanis have to declare all their assets in Pakistan and outside it. They will have to file taxes for the past two years.

  9. Thanks for the update and explaination.
    I am an overseas Pakistani for the last continuous 36 yrs. Non filers. During this period I purchased 6 different properties in Pakistan by remitting the amount through legal channels on my own name against my CNIC.by paying all the relevant taxes and duties applicable at that time.
    Do I need to declare these properties again on some prescribed form and 2 yrs of taxes paid like withholding tax on Banks and National Savings Schemes profits.
    AND. Do I have to pay any other amount against these properties which were purchased many many yrs before on existing DC Rates at that time.
    Thanks and regards.

    1. You will have to declare all your assets, yes. However, you will not have to pay any new/additional taxes, if you are paying/have paid all your taxes.

  11. FBR site does not work from aboard as it asks for Pakistani cell number to send pin code which does not work from abroad.

    1. Perhaps you could try contact FBR on their numbers. They will be better able to help you. Their helpline is generally helpful.

  12. What about selling property after more than 5 years in Pakistan. What all taxes would be paid. Thanks and regards

    1. You will not have to pay CGT (since it is after 3 years) and sellers don’t have to pay WHT anymore. So while you may have to pay some local taxes or duties or other miscellaneous charges, you will not be paying any major taxes.

  13. I have a question regarding declaration of the assets for filers. While declaring a property in annual Tax return, what value should be declared. The one with which they have bought or current value. For instance i bought a plot worth say 1 million in 2017 and in 2018 the value increased to 1.5 million. Now what value should i declare in my tax return because if i declare 1.5 million it will not match my earnings and if i declare 1 million will it be considered under declaration.
    Thanks and Regards

    1. Can you confirm if you declared the property at a DC rate of PKR 1 million? If you used DC rates, and the DC rates have changed to 1.5 million this year, you will declare the new DC rate of 1.5 million. In case you didn’t use DC rates, then you can declare 1 million. While I did discuss the issue with a lawyer before replying, I would suggest you discuss your options, with regard to your situation specifically with your lawyer.

  14. This is confusing; especially for “non-resident Pakistanis or Overseas Pakistanis” who pay taxes abroad as they work there but they don’t file tax in Pak as they don’t have any income or business. Are they also not allowed to buy any property when not having NTN number ? Appreciate your comment

    1. Yes, they can’t buy property without filing tax returns whether you have any source or not. However, if you don’t have any source of income, you will not have to pay any taxes. But you will still have file taxes.

    1. Yes, there is a tax on the house you are living in but its usually very low and negligible.

    1. It means that taxes will no longer be levied on FBR or DC rates of property, rather they will apply on declared value of the property.

  17. Can u plz tell us about filing of income tax return by NON RESIDENT Pakistanis / dual nationality holders, any link or ur knowledge on the matter please

    1. You have to file through an attorney who will have to visit your local taxation office for you. Though please note, overseas Pakistanis can buy property valuing greater than PKR 5 million, even if they are non-filers. New government has provided that exemption.

  18. So if I purchased a plot in 2008 and sold at for a profit in 2018, do I need to pay CGT on it? Or any other taxes?

    1. No, you will not have to pay CGT, but under the current (old) rules, WHT will have to be paid.

      1. But I was under the assumption that CGT is only payable if the property is being sold within 3 years of purchase? Also whatever money is generated from the sale of the property, is income tax due on it?

        1. My bad. Yes, you will not have to pay CGT. I have edited the previous comment. As far as income tax is concerned, you will have to confirm that with the authorities, you do have to include your income or losses from property in your income tax returns and/or wealth statement. Whether any additional income tax is charged on them, you will have to find out from the authorities. You can call FBR helpline, I have always found them helpful.

  19. Salam Muhammad Farhad,

    Thanks for your nice blog. I have purchased a 6 marla plot and a 6 marla house in Peshawar at the amount of 16 lacs and 32 lacs rupees respectively. I want to transfer them on my name (Intiqal). Patwari is saying that it will cost 126,000 rupees for the plot and 350,000 rupees for the house. Is he correct or not? If not, how should I pay the right fees? I shall be highly thankful for your quick answer.

    Best wishes,
    Dr. Sami

  20. Thanks Farhad for wonderful writing. I think it’s the only page with straight forward information. Just need one more clarity regarding purchasing a property, please correct me if I am wrong. For a purchaser, If the value of the property is less than 10 million (1 crore) and less than kanal than cvt and stamp tax is not applied, only WHT of 2% is applied for filer? Thanks in advance.

  21. AOA Sir,

    My question if a person wants to transfer a inherited property/plot as gift say Rs. 10 million to his friend, then what kind of taxes has to be paid by both? Secondly, what will be the impact on wealth statements of both the persons?

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