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Mini budget, overseas Pakistanis & Pakistan property sector

Laws & Taxes
3 min read | Samra Zulfiqar  | October 4, 2018

National Assembly passed the amendments to the Supplementary Finance (Amendment) Bill 2018 on October 3, 2018. Proposed on September 19, 2018, the biggest highlight of the budget was the proposal for lifting ban on non-filers looking to buy property more expensive than PKR 5 million. This, of course, invited criticism. The main objection raised was that a lot of effort was put in the annual budget 2018-19 to increase the number of tax filers by penalising the non-filers, while the mini-budget attempted to reverse it.

During the speech delivered while presenting the mini budget in the National Assembly for approval, Finance Minister Asad Umar announced that the relaxation is only for overseas Pakistanis. So now, only non-resident non-filers can buy luxury cars and property more expensive than PKR 5 million.

The ban on buying luxury cars and properties on non-filers of income tax returns stationed in Pakistan remains intact.

The tax-collection scope

According to certain estimates, the size of Pakistan’s real estate sector is PKR 7 trillion and much of it has remained undocumented for all that while. Bringing the sector into the tax net by imposing new taxes and increasing the ratio of existing dues was thought to increase the revenue for the national exchequer.

This has rather remained to be a challenging task, as instead of agreeing to pay taxes under the new tax regime, buyers and investors chose to not channel their investments into the property sector.

The effects of such major changes in the tax structure suggest that a more comprehensive and thoroughly-planned approach is needed where potential tax payers are gradually introduced to the related reforms.

The government’s decision to accommodate overseas property buyers indicates that similar loopholes in the tax regime that have made the tax revenue drop instead of going up will be removed. Some believe that a flat tax ratio will do the job.

Conditions under which overseas Pakistanis will be taxed

Non-resident Pakistanis who purchase property and cars for business purposes will also be brought into the tax net eventually, according to Special Assistant to Prime Minister of Pakistan on Media. Income earned overseas is exempted from all taxes in Pakistan and the government is looking to keep it that way.

The non-resident Pakistanis looking to invest in Pakistan real estate sector can do so by filing their annual income tax returns. In this regard, the online tax filing system of Federal Board of Revenue has a section reserved for them where they can enter their income and tax applicable on it as nil and become tax filers. For buying and selling property as a means of income, the National Identity Card for Overseas Pakistanis (NICOP) holders can simply share details on these assets with the FBR and start their business.

On the other hand, there are those who obtain NICOP for the purpose of enjoying the exemptions extended to overseas Pakistan on business setup in Pakistan. FBR has learnt that some NICOP holders frequently travel abroad to continue to avail the tax exemptions meant for overseas Pakistanis. It is mostly these NICOP holders that FBR intends to lasso into the tax net.

Clarity on remaining taxes

With one part of the changes introduced in the budget 2018-19 addressed, the stakeholders now expect that the focus will soon shift to clearing other matters. These include clarity on confusion regarding registration of property value on the sale deed. The mentioned price is to be used for the purpose of collection of withholding tax. This has left property buyers and sellers confused because the related law allows FBR to buy the property at rates higher by certain percentage then the amount stated in the documents.

Not to mention that a lot of efforts were previously put to determine fair market value of property, also known as the FBR valuation tables for calculated taxes collected at the federal level. For provincial taxes, the old rule was followed where taxes were paid according to the property’s DC rate. So clearly, the market needs a simple and easy to understand the taxation system where buyers and sellers understand how much tax they pay under which head.

If you have feedback on the article or any observation to share with fellow readers, use the comment section below. We are also available to answer any queries you might have.

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Samra Zulfiqar
Samra Zulfiqar, a real estate analyst at Zameen.com, is passionate about finding projects that offer buyers the best returns. Her keen insights spotlight the market’s most promising opportunities.

  1. Hi!Thanks for the useful formation.But there is another category of Pakistanis who hold POC Pakistan origin card.it is for those Pakistanis who were Pakistanis but became citizen of some foreign country with whom Pakistan didn’t have dual nationality agreement.so they get POC to visit Pakistan visa free to live until their POC is valid, usually for 7 years and then one need to renew it again.
    POC holders are allowed to buy property and open bank accounts in Pakistan but the problem is FBR tax system doesn’t recognize the POC number as it is bit different than normal ID card or NICOP. any information for POC holders residing in Pakistan in the context of property sale and purchase with new set of rules mentioned in the mini budget.

    Regards
    Anjum Nisar

  2. Only buyers left in the market are filers and overseas

    Now the filers are mostly cash starved but are real buyers, Overseas are facing difficult time abroad especially in middle east. So buying activity from overseas dropped significantly

    As a result there is small no of buyers and very large number of sellers

    Property purchases for investment has halted.

    Current Investors had good holding power so they kept on holding the properties for last 3+ years.

    PM Initiative for low cost housing will have affect on investors as 3-5 marla market will further shrink

    In my opinion its the last opportunity for investors to drop the asking price reasonably, to attract the real buyers, so that investors may convert their property in cash.

    No need to panic but lowering the prices to sell in the market is the only option left for investors.

    Sooner the investor sell their properties is better as FBR is also planning for massive probe. So sell you properties soon, declare the sale in the tax return and have peace of mind.

    I will welcome any one who may further guide us on the issue as there must be suggestions how can we get out of situation without incurring irreparable losses.

  3. Hi Samra,

    I want to invest in real estate as overseas pakistani.
    which is the best place to invest?

      1. Hi Samra, Capital smart city is all approved and NOC has given, and what do you think about time frame of investment, i am looking for short term around 5 year investment, is it worth it ?

    2. hello, my family is in UAE and employed, and we plan to buy a house in DHA .most of the funds will be transfered from here.have we to pay any tax to F B R?
      thanks

  4. The governments usually aren’t serious in doing anything for overseas Pakistanis (OPs). They mainly want to fill the foreign exchange of Pakistan. They don’t give any incentives to OPs. The government has now allowed non-filer OPs to buy property and cars, and as you mentioned, they would take withholding tax and at the same time, they would charge 0.06% (earlier it was 0.03%) on any amount paid through the bank. They should compensate the OPs.

  5. Greetings Samara

    i am living abroad and we have 2 kanals land in Engineer Town we want to sell it please advise what is best price we can receive since all these ares are developing very fast pace

    1. Depending its location, the price could be between PKR 16.5 to PKR 25 million. You should contact an agent to help you with close price assessment.

  6. Hi samra

    what taxes I need to pay at the time of buying or selling properties in Pakistan as non-resident and non-filer?

    Further also let me know at the time of buying properties what value I need to present to pay taxes, in most case documentation, registration and utilities connection charges were collected by builders as lump sum amount and real buyer is not aware of whole this process.

    Best Regards
    MA

      1. Hi samra

        Thanks for details shared by you but still below is need to be answered:

        Further also let me know at the time of buying properties what value I need to present to pay taxes, in most case documentation, registration and utilities connection charges were collected by builders as lump sum amount and real buyer is not aware of whole this process.

        Thanks

        1. The ideal practice is to mention the exact amount you paid for the property; the practice is followed worldwide. In addition, the amount you are taxed on is considered white and the remaining isn’t. So better have clean assets.

          About the extra charges, the details are mentioned in the terms and conditions signed at the time of agreement. Buyers need to be patient while signing up for a deal and look at the concerned aspects. If these terms aren’t mentioned, the developer can be requested to make a new contract with the related details written in black and white.

  7. hello samra,
    well i want o ask something about new amendments & tax return file, well i am overseas Pakistani & not filing my returns but I have my NTN, so now i can buy the property in Pakistan as p[er new amendments
    i want to buy property in such a ways that i can live there also in future, so what would u advise me for investment
    waiting or your reply in details
    thanks
    Dr,M,Jaffer Merchant

    1. The changes are made to facilitate people like you so please step up and make use of this special relaxation.

      If you plan to move to Lahore, investing in Phase VII could be a wise idea. You can read this article to get complete and latest update on it; https://www.zameen.com/blog/on-popular-demand-here-is-a-dha-phase-vii-update.html

      And if Islamabad is your preferred city, Park View City will be the best option for you; https://www.zameen.com/blog/park-view-city-the-end-users-heaven-in-islamabad.html

      And if you wish to invest for the next five years or so, go for Capital Smart City.

    1. Sorry Faiz, I just can’t find your comment and have no idea on what you said. Please accept my apology, you are welcome to criticize me.

  9. Hello Samra
    Thanks for providing guideline and information mostly to overseas pakistanis
    There were news that CDA has done new demarcation on Bahria Enclave and some portion of the existing area is declared as illegally occupied where houses and Plaza are build
    Do you have any insight on this and what will be the way forward in such a cases.

    1. We have to wait and see how the authorities concerned settle on the matter. Since the property now belongs to the end users, we should expect to see them being dealt with compassion. In worst case scenario, the developer will be made to compensate them. But let’s just wait to see how’s the matter handled.

  10. Dear Repected Samra Zulfiqar,
    Could you please, guide as i am planning to invest for 5 years 5 to 6 millions in Pakistan. please, advice which society / scheme i can get more value ?

  11. Based on the news and how things are going, it seems like the residential land values would go down soon, what’s your take on this? It seems like the property values could come down to at least 5%-10% in PKR and with the currency devaluation this could even further lower the cost for offshore Pakistanis.

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