During the past two decades, particularly in the years 2000 and 2008, many new investment opportunities were accorded to investors and overseas Pakistanis, which consequently brought capital in the country. The inflow of money noticeably enhanced the country’s foreign exchange reserves and assisted in maintaining the foreign exchange rate of Pakistani currency. The byproduct of this activity was a massive investment influx in new housing projects, universities, schools and other capital intensive projects.
The real estate industry, including the construction sector, is considered a prime catalyst for economic activity in Pakistan. This sector leads to job creation in a number of allied sectors, value addition in the supply chain mechanism of the related industries, as well as collection of substantial tax revenue. A visible outcome of development in this sector was an unprecedented rise in the value of urban and agricultural land prices.
This huge investment in the real estate sector under the existing tax laws had its own price to be paid in terms of providing safe haven to untaxed money, mushrooming growth of speculative files business, and allocation of capital to unproductive sectors. The government has tried to address some of these major concerns through changes in its fiscal tax policy.
Therefore, it is now important to discuss and assess the impact of the significant fiscal changes brought by the Finance Bill 2016, effective from the 1st of July, on the real estate sector. In order to help investors make an informed decision:
- Advance Income Tax (adjustable) on purchase of immovable property under Section 236-K increased from 1% to 2% for tax filers and from 2% to 4% for non-filers
- Advance Tax (adjustable) on sale of immovable property under Section 236-C increased from 0.5 to 1% for filers and from 1 to 2% for non-filers
- Capital Gains Tax (CGT) has undergone two major changes in terms of time frame and fair market valuation of sale price, which are summarized below:
a) CGT will be levied at the rate of 10% of difference between the fair market value at the time of sale and purchase if the property is sold within 5 years of its purchase.
b) Fair Market Value: The Finance Bill has inserted a sub section in Section-68 wherein the concerned Federal Board of Revenue (FBR) officer can refer a certain property for its fair valuation to valuators approved by State Bank of Pakistan. To this effect, State Bank has already issued relevant notification along with its approved list of valuators. Secondly, the Finance Bill specifically mentions that the current Deputy Commissioner (DC) rates do not bind FBR to use it as reference for property valuation. It is important to mention that under the Income Tax Ordinance, Commissioner had valuation powers but due to certain reasons, these powers were inoperative and consequently DC rate was used and accepted by FBR as the sale price for any property.
The examples below would better illustrate the impact of above amendments especially those made in the CGT.
For the sale of a 1 kanal residential plot in DHA Lahore from Phase I to VIII, which was bought and registered in the last 5 years, with its current average market value of PKR 20 million, seller will be paying Capital Gain Tax as below:
CGT = 10% of Market Value of Plot (MVP) – Declared Value of plot (DVP) at the time of purchase
DVP (in last 5 years) = DC Rate Value at the time of purchase = approx 7 million/kanal (average DC Rate for DHA Lahore residential plots in Phase I, II, III, IV and V in the last 5 years)
So CGT = 10% of MVP (PKR 20 million) – DVP (PKR 7 million) = PKR 1.3 million
Also, remember that 1% and 2% Adjustable Advance Tax will be applicable on filers and non-filers respectively. For filers, it will be adjusted in terms of claiming credit when they file annual tax returns but for non-filers, it will be an additional cost of PKR 400,000 in the stated case. If Transfer Fees, CVT and Stamp Duty are added strictly as per the law, a minimum of PKR 2 million would be paid from July 1, 2016 onwards on the sale of every 1 kanal residential plot in DHA Phase I-VIII.
The question is, who will benefit from this new game plan of the government, and who will suffer disadvantages?
Primarily, these changes in the tax statute are supposed to take black money (the untaxed money that was invested in the real estate sector) into account. The transactions took place at the DC rate, which in certain cases, especially for commercial plots, was ten times less than the fair market value of the property. For overseas investors who have to bring in their money through banking channels, the change in law should not be a cause of worry.
As far as the doubled withholding tax rates on sale and purchase of property are concerned, it is being done primarily to increase the cost real estate transactions for non-filers. Overseas investors, on the other hand, can file their annual income tax returns and claim the credit in advance taxes paid in their annual income tax returns.
In view of the above discussion, a downward correction or a breather thereafter in the prices of the overall real estate in the country is eminent. However, the major impact of all these changes will be observed on the black-money holders and their strategy to park their untaxed money in high-tagged assets that enable them to launder the black money.
Similarly, the changes are bound to have an impact on short-term trading as CGT has to be paid per the amended law. However, as elucidated earlier, this should not worry overseas investors or non-resident Pakistanis who can declare their sources of income as white money and are usually long-term investors. The only impact on the market would be a reduction in the value of their investments, however, that is merely a short-term effect, as the market is likely to regain equilibrium in the long run. It is expected that the market will grow slowly and steadily as and when the speculations tone down.
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I think minimum 2 million
There must be correction in it
corrected thanks it was just a human error
20 M – 7 M = 13M
and 10% of difference (13 M) is 1.3 M
This article is quite informative Hassan. Thank you.
Your example above lists a minimum tax to be paid of 20 million after fees, cgt and income tax on a 1 kanal plot in DHA Lahore . Shouldn’t this number be 2 million instead?
Regards
yes it should be it was a human error and it is corrected sorry for in convince.
i hope u found the article informative and liked it
Great information. Thanks Basra Sb
Hi Can anyone explain filling the tax returns at the end of fiscal year for overseas Pakistanis and its impact on sale and purchase of the properties owned by overseas Pakistani thanks.
saqib
kindle elaborate ur question and be specific
Hassan I am an overseas pakistani, I send my money through bank and I have few properties in new housing societies. How the new tax system will effect me on selling my properties and while purchasing new properties? thanks
first off all its good that you send your money via banks so there is no worry how u earned it. secondly u have invested in housing schemes most of which have there own file system which they transfer them selves and fbr or no other has data of it, so nothing to worry about. only thing when u will sell ur land goverment can only ask you from where did u get this money thats also a rarety but question may arise.
and you have to justify tht i had sent from overseas and have earned more profit by selling my property then u will be eligible for tax on ur profit gains from property selling.
Lovely! thanks Hassan much appreciate your assistance..
Saqib
You should file your income tax return to become filer in FBR’s records and to avail lower rates of advance tax deduction at the time of sale and purchase of property.
Moreover, I feel it relevant here to say that if the schemes you invest in are introduced by Federal Government, Provincial Government or an authority established under law by the Governments then, you can even save this ADVANCE TAX altogether 🙂
Thanx for update, pl clarify weather these all taxes will be imposed on plots without posession like dha lhr ph 9. Thanx
tax will imposed on all kind of property of government has record whether its with possession or not
No additional tax is levied, however there is given an additional power to tax officials to call for market value through valuers.
What i feel from your query is you are awaiting possession of any property (being investor) then you dont have to worry at all 🙂
It seems following impacts of this law are most likely :
Total money on taxes on transactions will increase, but not too much compared to value of transactions. But still margins of dealers will decrease. It will have impact on small investors and day traders though who will get more hit on high volume transactions that is their bread and butter. Big black fish will be ok, their net margins are high to absorb these taxes for now, as they exit the property business.
When a seller will sell property, if it was bought with black money, or the property was under declared on paper, for sure FBR will track the scent of such deals and pursue the seller for a fat tax cut, or bribe.
For buyer, it will not be possible to park black money in property, and many genuine buyers will want to put the market price of property in deals now, least they get into trouble when selling, or have to prove their source of income.
End result, mafia will exit property business or will have government officials in their back pockets as they always do. FBR will only harass small and medium buyers for taxes or bribes. Dream of ordinary people to build houses will still not be realised, because officials will want their cut, and societies will not develop without investors, so what genuine buyer will want to buy somewhere with no infrastructure? The real headache will be dealing with notices, and harassment . I know of a few people who received notices on buying property, this happened even when there was no such law, and it was not a stress free experience. Of course big players will find the way out as they always do in every other sector of Pakistan. It’s the small guy or many overseas Pakistanis who have no clue how systems work, they will suffer the most when they start receiving a volley of legal notices.
And mind you no body knows if this law will be implemented in full or not. But government must be feeling very keen to utilise their new source of income on a smaller scale, to milk the cow as quickly as possible especially from helpless small buyers and overseas Pakistanis.
So net net, who benefits : corrupt government officials who want their share. Who looses : small investors, dealers, white collar overseas Pakistanis, it will be tough for them to find buyers, and more hassle to sell even if they do. Who is not impacted : big fish investors, politicians, and everyone who has the capacity to work the system, that’s why you find them least bothered about these changes.
bilal you have nailed it. no better words could have been used and no better explanation ur comment should be part of the article. but then i would have been a wanted man. take care and like my facebook page https:// www. facebook. com/kingsrealestategrw/
Thank you Hassab sb for explaining the ambigous topic being discussed everywhere.
CGT will be applicable at above 3million. This 3 million is the value of property while purchasing or selling? If i bought a plot at DC rate of 1million and sold at FMV of 4million, will it be applicable and how much?
on the profit you make under the current law. the problem is that before v use to rate property less to avoid taxes but now as government will calculate property value and will evaluate your profit so this means you end up paying more tax and if you are selling it before 5 years of purchase then its a night mare. and please dont curse me after reading these comments i have nothing to do with new taxes
But there is a limit for CGT as it will be applicable only above 3 million property. This 3 million limit for purchase value of property or sale value?
Thats for purchase value
i want to purchase 03 marla residential home. having market value Rs.5.500 (M) with DC rate almost 300,000/- per marla. i m filer. how much tax and overall cost i have to bear in addition of Rs.5.5000 (M) according to current scenario.
hmm i wish i was that good in maths tht i could reply fast. let me make a formula and app for all these calculations. mean while you read the whole article and calculate it ur self
but you are good in math.. i want calculation.. what u say this new tax regim brought down vale of property…. values of property are too much high that it is a dream of common man to build upon his own home
no wonder prices have come down and will come down right now sale purchase is at a halt with fb rading real estate agents
Good Basra Sb., nice and informative article. The tax would certainly have a substantially negative impact on real estate market.
May I ask what will be the case if I am selling anything after 05-years? will I still have to pay CGT & Advance Tax?
My greater concern is why not use Fair Market Value at the time of buying to calculate CGT as well. This seems rediculous taht you take DC value at the time of buying but Market value at the time of selling.
no at both selling and buying market value will be taken but as before the rate was was applicable so the profit difference would be measured from the old rate that you have bought and yes both taxes will be applicable you will just not pay 10% for early selling tht is with in 5 years of purchase.
This appears to be giving a negative impact on the market, but Hassan you are correct the market will re adjust itself. One must bear in mind that this money will go in the pockets of these corrupt politicians at the end of the day in form of “Offshore Accounts” or “Money Laundering” through Air or Sea. If this money will be spend on people of Pakistan then you will not see “Road Dust Bins”, “Water Shortage”, “Absent and Expensive Electricity”, ” Broken Roads”.
Army should save people of Pakistan from Government of Pakistan.
if any one can save pakistan thts our seleves we have to mend our ways. and play a positive role and deal with all of it as nation
I heard that this kind of tax imposed in past 1993 but lift after sometime due to protest against it.
goverment did some thing in 1999 but then nawaz goverment was ended
Hello Hassan Bhai,
I am a student, but I also work as a freelancer. All my income is based in the UK. I work from home and earn in British Pounds. Then I transfer the money to Pakistan and then purchase plots. But I have never transfered bank to bank. I am not a filer as well. I always trasnfer through Western Union online. They take 1 Dollar fees and transfer the money hassle-free with best possible exchange rates. If I transfer bank to bank, it would have cost me more than 1 million already. I saved that 1 million and invested in property.
Now please tell me what would be my status. Are they counting my transctions as black? And what if I become a filer? I mean, even if I try, will these officials at FBR understand my source of income? I don’t think so. Am I in a situation known as “AAGE KUWAAN, PEECHE KHAAYI”?
Haider save all the receipts of Western Union and what do u tell them that who is sending you money.bring money has a family support. and since you don’t earn in Pakistan so no point becoming a filler in Pakistan. but if you decide then become a filler apply for a loan from bank but don’t withdraw it and tell FBR that you get money from abroad from family and friends as support for daily life. and save receipts as Western Union transactions count as legal.
Kindly contact smh_aff@yahoo.com
Accountants and lawyers, expert in tax matters and resolution of tax issues.
you can contact smiza.lhr@gmail.com or 03200001978 for tax matters
Mr hassan , i am a white collar overseas pakistani , i want to invest my hard earn small savings in real estate, so that i could earn some profit , but the current picture shows i should not buy any plot as i will end up in loss rather profit after paying so much taxes. Please guide me what should i do ? At the max i can buy 1 10 marla plot in lahore
go for file in any good reputed society which has its own office for transfer and is not a registry you will find many. and the picture is not as bad as you are seeing it. this is trap for big fish small fish will swim for long and will keep on avoiding traps
Basra brother!
Thks for details.
1. I HV purchased property
1.2009 (no society) 2 m
2.2 012. Society
2…2014 society
Through an property dealer.
Which property under threat. We never received tax letter.
Pls advise
property tax is a seprate thing and these taxes are seprate these taxes apply when you are selling and buying then fbr is involved. in case of property tax contact excise and taxation department.
I have bought a 10 Marla plot in DHA in 2012 with Rs. 3.3 Million and constructed a house on it. Now I want to sale it with approx Market Value of Rs. 20 Million. Is there any one who can tell me approx how much tax cost being a filer should I have to bear?
tax will be on ur profit of 16.7 million you would be paying almost 1% tax as captial gain tax. and extra 10% for selling it before 5 years on market value of plot
Pls dont forget construction cost.
I beg your pardon but this not a profit, you must calculate the value of the house now. I think if value comes out to be 15 million, which is 5 million over the value if sold for 20 million, than tax calculation must be done on 5 million. Is this under standing correct basra sahib? if not please let me to understand.
Thank you
Very sane decision by Govt.
Real estate has been a safest, but long term investment. During past one year its prices have been jacked up in matter of hours and days unimaginably by gambling and speculative trade. Real home seekers have been kept at bay. They are now compelled to hire accommodation on rent by sacrificing other essential needs.
no doubt you are right but these taxes have only increased there problem has not helped them in any way
Hello Mudassir,
It is very true.
The prices are so unreal and to me it looks like a bubble which is gonna pop anytime like the UK housing market busted back in 90s and had a second dip in the year 2010 and still recovering.
I’m a PhD researcher working on ‘Affordable Housing in Pakistan’ more I dig deep into it it made me unease that a member of low-income segment of Pakistan even can not think of buying a house without a miracle.
What is source of information provided in blog?
i had a dream few days ago thts the source. check fbr website read the new budget.
read news papers
I purchased a plot of 500 yds in defense in 2012 for 10 million from foreign remitence..do I have to pay taxes according to market price of 2012…and if I want to sell it now..how much I have to pay taxes.
depends on current rate and how much profit you are making according to the valuation of goverment.
Its Samuel William Din from Pakistan, Karachi. I am a insurance agent. I never paid income tax and not submitted e filing of tax returns. I borrowed 200000 rupees from my friends and invested in stock exchange. As my friends had sent me money by cross cheques and online transfer, it remained in my and my wife’s account for one year then we invested. Now FBR has sent notices to me and my wife. My wife is staff nurse in Aga Khan Hospital and pays her tax there. But she has not mentioned this investment in her returns.
Now we are in trouble. Please help us and save us from FBR as they are behind me and my wife.
Thanks. Samuel William Din, Karachi.
Dear Hassan Bhai
From a very long time I was thinking of buying a land in DHA Islamabad/Rawalpindi to make a house for myself, During This ramadan I finally like one canal plot for making a house for myself. I am a retired Army officer having no plot before and I was always a tax payer until I went outside the country. I have made an advance payment of Rs 0.5 Million sent from outside the country through legal means to a bank account. I had no idea of what is happening or about to happen. Now I have been told to pay something close to Rs 0.71 Million in Taxes and transfers to get the NDC. For sure the price which is being calculated on is not the actual price I will pay, I will be paying double the price. Do you think I should continue the deal or I should ask to give the advance back on the pretext that the cost of land due to high taxes would not allow me to meet the price demand. Plus is the value of land likely to go down or increase? My aim is to make a house not sell but nevertheless I don’t want to buy a land which could have been bought for less now that the land prices are likely to go down, if they are likely to go down. Kindly elucidate and give me your expert opinion. If I could get your personal E mail so that I could be more specific I will be grateful.
Thank You
there will be slow period in the market speacily dha as goverment i belive has specially targeted dha. i would advice you not to take your money back but wait and sice u have sent your money from abroad you dont need to prove you source of income if you have all the receipts. and as you said you where a tax payer and went over seas tht still makes you tax payer and above that you must be pensioner. feel free to contact me hassanbasra790@gmail.com
i would advice you to wait let the dust settle it will be clear soon.
Hi Basra Sahib,
Very informative article.
My situation is similar to Haider from UK. I’ve been sending money using money exchange in the UK but my father receives it from MCB bank etc.
In 2007 I secured a plot in one of the society in Lahore and still do not have the possession.
Also, I’ve bought a plot in one of the Bahria Town’s schemes; due to my absence my father holds the ownership for this plot, at present.
I want to sell both of them in near future; would you please be able to highlight my situation.
I’m a PhD researcher and looking at the ‘Affordable Housing Concept in Pakistan’; please let me know if you be interested to take part in my research project.
Regards
A. Jalal
jalal you have invested in bahria you dont have to worry about taxes. plus since you have all the record of ur transactions so all your money is white. this means fbr and nab cant do any thing against you r ur father. and if you transfer your file only in society you dont have to worry about any thing.
you can contact me by email hassanbasra790@gmail.com
i would love to participate
What about inheritance property transfer within 5 years but purchase in 80’s is there any capital gains tax or any other tax applies if I sell now within 5 years of transfer? Thanks in advance for your reply
good question and honestly i have no idea about that will do some research for you take care
I would Love to know the answer to that as well.
Good morning, I have an house purchased in 2014 by 65 lacs in airport housing society rwp, would you please tell me how much I have to pay the tax if I sell this house at the same price of 65 lacs.
Best regards, Raja Zafar
what price did you mention when you purchased the house??
brother hasan plz explain me that if i had bought flat @ approx 2 million in 2005. now i am selling it @
7 million rs as market prices goes up in these 11 years. what will be in my case about gov. taxes CGT and so on. plz tell me in tax filer & non filer both caes.
give me a buzz after 2 days will calculate right now i am hungry and carving for pizza
Basra Sb, First of all million thanks indeed for your worth article and clarity of many issues specially for overseas Pakistani like me , who are white collar and doing very reputable job abroad, And always ending foriegn overseas remittance through banking channels and paying alot of taxes , already in overseas remittance. I have few questions and concerns that for sue help othr ovear seas Pakistanis such as :
1) As per my research and understanding as a normal user , the tax ordiance 2001, all overseas Pakistani white collar and blue collar dont need to return annual file because we not simple meets the requirements of staying 180 days / year, as mentioned in the ordinace , so no point of filing tax. and FBR should put us in Non resident paksitani list . because our NICOP states our country of stay, so this is bigest flaw of Govt.Even I raised my voice to high level managment of FBR, An they had no answer . 🙂 You can plese guide or if some tax lawyer in this group, he can endorsed by understanding — right
2) Secondly,, I think all taxes will be paid by buyer not purchaser, such as CGT etc, because seller usually not pay and if he pays then charge higher price of the property ? am i right ? this is usually happens in overseas .
3) What is the difference between property tax every year we pay on property from long time ago and these taxes at time of transactions?
4) you said buy properties or files in private societies , for example bahria, dha, and other they they have their own transfer mechanism , so how to evaluate the market value and avoid taxes — please guide ? because if tomorrow government stops them then…
5) what is the proces of finding property evaluators, so for every purchase we need to telephone them or need to find them or will they publicize rates on any website — what is the process?
6) How about if evaluators evaluate per marla price very high because for biasness or favouritism- how to control them ? And it wil be another competetion arises if some property is evaluated at high price? this is trap
7) Will they set price for BAHRIA, DHA, OR PRIVATE SOCIEITES , who have NOC or they will not set market value for it ?
looking forward to your candid suport and help and wish our Dear governemnt can provide such help that you did voluntarilly. MAY ALLAHA BLESS YOU AMEEN
Regards, MALIK
Hello Malik Sahib,
With due respect, I’m a researcher in ‘Affordable Housing’.
You have raised very valid points regarding favoritism and under-the-table bargains.
I agree to your point regarding buyers pay the tax; also as a keeper or the resident of the property we pay property tax every year, why do we have to pay it again at the selling point.
I think, there are so many flaws in this new property law (2016) which needs to be looked at again.
Saying that, being a loyal Pakistani, to contribute my share, I do believe in paying the rightful taxes and respect all other property by laws.
Asad
Mob: 00447737664167
malik sb kasma itna lamba comment
ajj nahe kal parhoon ga phir reply karron ga
malik sb hope you are doing good lets get things straight we dont live in a ideal society so do expect some hanky phanky here and there.
cpaital gain tax and tax for selling property before 5 years will be paid by seller rest transfer fe cvt and stamp duty and any membership fee is to be paid by buyer
state bank is working on property evauator and most probably it would an other department and yes quaid e azam will be a good source there(i hope u know what i mean)
and for the time being many private schemes are not axed lets see what future has stored for them but for for know they are safe and good place for selling buying if you want to stay un noticed.
rest i hope i have answered all your question take care
hassan basra
03216433633
Dear Hassan Basra , I am an overseas Pakistani and have purchased a Plot in Bahria Karachi for 1.5 crore through my friend. As Payment has to be made urgently and it takes time to transfer big amount from overseas ,also there were long Eid holidays , my friend made Payment from Cash crossed cheques from his business clients and not from his account. Now I have transfered money through bank in my friends account but I am worried about legality of my money as my friend made payment with his clients cheques . Plz reply urgently as I am really under immense stress .
It seems u r tired now and not replying to queries . Plz take some rest and help us .Regards and God bless u . Thanks
dear naveed first of all no need to worry as bahria so far shares it its data with no one and files are transferred with in society. secondly you should have waited as in future it would have been lot easier for you to tell that you invested your overseas wealth in property. but never the less you dont need to worry there is nothing wrong happened here tht you should be worried. enjoy and take care.
Dear Hassan,
An update, Bahria share their data with FBR because FBR is after me to pay tax on a plot purchased in 2011, received several notices to file wealth statement.
and naveed you friend is in no kind of trouble dont worry about that
Thanks a lot Hassan sahib . God bless u.
The tax is a good move by the Government. This is the only way they can stop the fake investors and corrupt property dealers. Because of their stupid games property went out of the reach of common man.
kamran sb tell me this after you have sold r purchased property
Hassan Basra Sahab I am waiting for ur kind reply. Thanks
Lets start paying the taxes religiously for the betterment of the country. Investors need not worry coz the overall burden will go to end user. Enjoy your time. Best of luck
hello every one if i dont reply here you can all email me hassanbasra790@gmail.com
hassan basra
I have a question regarding transferring some land which is not selling but kind of legacy and giving as a gift. What taxation applies in this respect?
if its normal family transfer then no tax but if you r transferring it to some one else name then its just a normal transaction.
Its Samuel William Din from Pakistan, Karachi. I am a insurance agent. I never paid income tax and not submitted e filing of tax returns. I borrowed 200000 rupees from my friends and invested in stock exchange. As my friends had sent me money by cross cheques and online transfer, it remained in my and my wife’s account for one year then we invested. Now FBR has sent notices to me and my wife. My wife is staff nurse in Aga Khan Hospital and pays her tax there. But she has not mentioned this investment in her returns.
Now we are in trouble. Please help us and save us from FBR as they are behind me and my wife.
Thanks. Samuel William Din, Karachi.
i wish i could have told you a way out just tell them its your life saving or you have sold some gold and money came from there.
I am a Tax Lawyer, Samuel William your issue is not so big. you have to file income tax return and welath statement of those years when you borrowed money from friend.
#tax #fbr #property #pakistan #budget #realestate
calculation of tax while selling or buying property in Pakistan keeping in mind current rates of market in Pakistan
Buyer – File
Corporation tax / Town Tax or Registry Fee = 1%
Stamp Duty = 3%
Capital Value Tax =2%
Withholding Tax = 2%
Total tax to be paid by buyer who is filer = 8%
Buyer – Non Filer
Corporation tax / Town Tax or Registry Fee = 1%
Stamp Duty = 3%
Capital Value Tax =2%
Withholding Tax = 4%
Total tax to be paid by buyer who is filer = 10%
Seller – Filer
Withholding Tax = 1%
Capital Gain Tax as;
15% CGT on sale of properties within 3 year of purchase
0% CGT on sale of properties after 3 years of holding period
Seller – Non Filer
Withholding Tax = 2%
Capital Gain Tax as;
20% CGT on sale of properties within 3 year of purchase
0% CGT on sale of properties after 3 years of holding period
hassan basra
03006428201