If you thought property purchased or sold only after July 1, 2016 would be evaluated per the new mechanism and be taxed accordingly, you have been wrong!
Federal Board of Revenue (FBR) has released further details on New Property Evaluation Mechanism, which is now termed as Procedural Law. The valuation mechanism for immovable property will be applicable on property deals done between 2006 and 2016. In other words, property owners and investors who haven’t paid their property taxes on transactions done between these 10 years will now have to pay up.
Once again, the terms are different for tax filers and non-filers. The tax filers will pay taxes on property they purchased and sold in the last 5 years while the duration for non-filers is 10 years. Evaluation of immovable property will be carried out by the evaluators appointed by State Bank of Pakistan (SBP).
According to news details, FBR plans to collect 35% tax and a similar amount in fine from people who allegedly invested their black money in real estate during these years. If needed, the chances of facing a two-year imprisonment also stand valid.
This new rule allows FBR’s Commissioner for Inland Revenue to refer immovable property deals to the panel of evaluators appointed by the SBP. From the tone of this news, it doesn’t appear that studying record of the past deals is done just to know the correct current market value of the property. If the intention is to collect tax on the past trades, many people can go bankrupt paying taxes on property they have purchased and sold in all these years.
The press release reads that this mechanism to check property trade records of the past year will help the government collect 35% tax on the black money that has been cycled in the real estate since 2006. And not to mention, there would a 35% fine on tax evaders. Fortunately or unfortunately, tax as well as fine percentage is the same for filers and non-filers.
Furthermore, SBP has committed to ensure that property evaluators’ panel, comprising experienced personals, will complete the evaluation process in a transparent manner. This process, per the press release, will be completed within a month.
You see, it was a long press release claiming that known tax experts, chartered accountants and patriotic business community of Pakistan had widely appreciated the decision. These “experts” believe that the new mechanism will not only help collect tax of billions of rupees, it will also help FBR effectively enforce its writ, paving way for establishing a fair and equitable taxation system throughout the country.
Meanwhile, as you read this article, another major development is taking place. The Excise and Taxation Department has started to prepare lists of plots that are lying vacant for the last two years. This is being done to collect taxes from the respective plot owners.
According to Excise and Taxation Director Rizwan Sherwani, about 650,000 plots lie vacant at the moment but he did not clarify if the plots were located just in Lahore or throughout Punjab or the country for that matter. The owners whose plots are vacant will be required to pay 10% of the property tax applicable on the respective locality.
Well, for all the valid reasons, stock market in Pakistan is currently doing well in terms of trade volume and that’s despite the fact that stock exchange is currently down worldwide. The stock traders are excited about these new taxes levied on real estate and are anticipating that property investors, discouraged by the havocs of Budget 2016-17, will instead invest in the stock industry. So they are apparently being proactive by investing heavily in stocks.
On the other hand, I am wondering if the random returns offered by the uncertain stock market of Pakistan can entice property investors, especially when they have options to invest in tax-free properties abroad.
Let’s hope that the new tax policy that targets the real estate sector of Pakistan doesn’t backfire and result in doing more harm than good.
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What black money they are talking about to bring in tax net? We all knows there are no one except these politicians and government officials Madam! do u believe they will be catch??? At the end only and only gentlemen will be in troubles.
Black money is the one whose source can not be declared and you can not provtde to have paid tax on that. In Pakistan only 0.3% people pay tax. You may apply a similar percentage people involved in the property business.
You r right. All these Laws Wont Apply to corrupted Parliamentarians & VIPs Mafia.Leader being the Prime Minister
I visited many government departments for my legal work trust me i didn’t see a single person doing his job honestly. Their eyes were on my pocket and tongues were out like a dog sitting beside of a butcher shop. I again says paying tax is not bad but dont rob us, paid tax will never be used for our welfare.
From last 6 month we are struggling to get the NOC from LDA for our house, to move the file LDA is asking bribe even the case is genuine and all record available with us.
Just imagine what will happen when these thieves will implement new system it will open window for financial murder of people.
Please compare it with the tax paid by people involved in stock market.
All taxes on property will be paid by end buyer, its already out of range of 80% of Pakistanis to buy their home and now the distance going to be more. its simple mathematics, for instance we buy a thing @ Rs.100 and we sell @ Rs. 110 by adding tax if its cost us @ Rs.110 we will sell @ Rs.120.
As an ordinary Pakistani I am sad to know these moves.
What if the deputy commissioner official value is Rs. 17 and sell @ Rs. 100 in the market… who is responsible for this inflation…. only black money… think about it as well
Dear Samra
I appreate your work and knowleadge about oue real estate sector. You are definately doing a great job and Zameen’s content department would be proud of you!!
I have been working in the real estate sector as Investment Consultant & providing brokerage service in Karachi in different real estate schemes/societies including Defence/Clifton/Bahudrabad, Nazimabad/Scheme 33 etc
First, these changes are not practically possible as rumors are that soon a Stay would be carried out against this Income Tax Act amendment in supreme Court on behalf of real estate investors and broker associations on following grounds:
They would demand from the government to collect data of State Bank, FBR and other Government officials/bureaucrats investment in real estate and ask them to show their assets first and evaluate them as making them a bench mark as part of the newly imposed property evaluation mechanisms as personally i know a lot of these officials who have invested in big schemes and believe me, they won’t be happy enough with their own announced amendment then.
Another important point is that if an investor is charged with 35% tax + 35% tax penalty and he is not satisfied and think that the action is not justifiable and would think to challenge it.. where would he go for appeal?? what would be the criteria then??
Their are a number of investors who will pull out their investment from Pakistan Real Estate and move them to other countries where tax relaxation is up-to 0% like in Dubai. Hence despite benefiting from the scheme they would even loose their local reserves.
on the other hand, Stock market is a very volatile market and growth in industrial sector have no charm left so if the govt. is in view that investments would be increased in these sectors, I didn’t see a fair enough reason to do so.
Mean while, all this sounds like FBR has opened another window for taking extra bribe as they are the basic medium though which the SBP would know about who has not shown their actual property valuation in their tax return and they would pass only the details of those individuals who refuse to bribe them or their real estate trade is in such volume as to make them in tax bracket is necessary because FBR would also have to demonstrate their loyalty huhh.
I want to write a lot but being a non professional content writer so it is all by me till now. Hopefully i would share some other details soon
Regards
Jamal Memon
Hello Jamal,
Can you please share your email address ?. There is an explanation i would like to have in layman terms for all of this and you seem to be the person for it.
capital flight, you will see. Deter investors and will not help genuine buyers due to high taxes.
Will it apply for overseas / non resident Pakistanis investing in Pakistan. As I knew their transactions are tax free.
following
Overseas Pakistanis are easy to catch and unfortunately there is no association for overseas Pakistanis at Govt or private level which is able to raise the voice for overseas people.
Overseas Pakistanis sacrificing themselves by working in harsh environment, staying away from their families, parents, relatives just to feed their families back home and support their country which is having trade deficit and not able to generate the exports because of high cost of production. Overseas Pakistani should not have left Pakistan if there is job for them in their own country. After all these sacrifices what they get nothing.
I strongly suggest zammen.com to call for seminar for overseas Pakistanis in UAE or Lahore similar to you guys do for property exhibition in Lahore and listen the issues of overseas Pakistanis. This is time to stand for ourselves and we should not wait for someone else to fight for us and we still in home. Lets defend for our rights and kick out these thieves from Pakistan its better for them to stay in their mother London and Dubai or Saudi.
I would also like to know the impact of new mechanism on Overseas Pakistanis, can any Property / Tax expert answer this question?
What they want to do is OK but need to correct government officials first . All fbr and other government officials are corrupt even if not corrupt than he is not cooperative with public. Government must focus on the training of government employees trust on tax payer even if there are small irregularities ignore them and let the people come in tax net. Hope in this way common citizens confidence increase . Otherwise existing tax payer will also run away.
Will it apply for overseas / non resident Pakistanis investing in Pakistan. As I knew their transactions are tax free.
I think like government we individuals/investors/agents have also started thinking selfeshly. Irrespective whether the money will be pulled out and invested outside the country or the Government will use these taxes for nation’s welfare is not the question..The bright side is that Middle and lower middle class will still dare to have their dream house one day!
Govt wants twi main objective through this amendment in tax ordinance
1- huge revenue generation
2- to stop capital investment in real estate sector to encourage public to invest in industry sector
As Govt impose this mechanism there wil b sharp decline in number on transaction of property sale purchase so net result wil not b fruitful
Big investors who have invested in real estate sector in Pakistan wil fly to Dubai and there will b capital fly
What I think Govt has to revise the DC rate gradually over the time to equalise it to market rate
An abrupt move may spoil the real objectives
Zahid
A person who took loan from bank. 35% he will pay interest to bank. 35 %to government.then penalty then jail.. tera Berra gharaqq..
Dear All, I am surprise to review you comments.
One thing I would like to reply to all for above mentioned comments, that the real estate sector is that much non professional that it even don’t know ABC of tax implications.
Pls keep in mind that there is no single country in the world where one can earn such (equal to Pakistan) high return without INCOME TAX.
Every country has its own tax system and every one has to declare it’s income and has to pay taxes in whatever form it is ( even in dubai) .
If investor think in dubai cost of investment will be less than tax in pakistan. It is not possible.
Now let’s discuss about capital flight. Please note whoever will opt for capital flight, in any case every plot holder who fall in criteria of tax amended mechanism will have to pay it, whether he opt to uplift capital illegally to any other foreign market or not. His registration for last 10 years transactions (in real estate term DEALS) are already in excise records.
Now let me explain the tax rates. The average INCOME TAX rates in Pakistan for corporate sector is 35 %. Whereas, SMEs and other businesses with turnover less than 500 Million have around 30% taxes. Therefore to pay upfrontly 35 % seems high for investors, but you will appreciate that corporate sector and rest sectors have paid 35 % × 10 years total 350 % tax in Last 10 years on its INCOME/PROFIT. Now the real estate sector has only been asked for 35%+35%=70 % for 10 years now just compare 70% with 350%.
The answer of another question about corruption and corrupt mafia in Govt Deptt. My dear all if Pakistan total FBR Taxes (Direct, indirect and other taxes) is around PKR3,956.1 billion which have been collected from all other sectors of economy but without contribution of tax evaders,. The CVT collection in FBR basket is only 2.3 billion, then should these sectors also opt for capital flight with the excues that Govt. Officials are corrupt and with additional excuse that real estate sector is also not contributing their income tax . If the answer is YES then who will be left to live in country? Only poor people like ethopia.
Please note the average rate of return for all living in welfare estate should be 15%. All the countries in the world have formal documented economy. There is no such concept of DC rates and Market rates in the world. Every one has to declare it’s true source of income, even in worst corrupt govt of India.
Therefore let’s work hard with advance techniques for new up comming opportunities like Gawadar, like state of the art projects of Bahria, like high tech homes in toronto and like spring apartments in lahore and forget about just making money on plot files based only on breaking news. Pls note realestate market in dubai is of apartments, offices, buj ul Khalifa, burj ul dubai, palm jumaira and not in shape of only trading in files. Therefore we should concentrate on development not just on plots. For every challenge there is always opportunity.
Khurram sahib, your calculation is wrong … if SME paid 35% tax on their profit in last 10 year then they have still paid only 35% on total profit (all 10 year) not 350%. If they are asking real estate to pay 70% tax on profit the made in last 10 year then they are paying double.
i.e if SME profit is Rs 10 every year in last 10 years then they have paid 35% on (10 x10) which is Rs 35.
Now if real estate has made same profit in last 10 year and gov asking 35%+35% =70% on their profit then they have to pay Rs 70 from their total profit of Rs 100 which is totally insane.
Brother, I appreciate your point of view on the matter. In all fairness, I disagree with your mathematical conclusion that 70% is tolerable and less taxing than 35% over the course of so many years.
Consider this, lets suppose 100 rps profit for each year these past 10 years, each year 35% tax would translate into 35 rps deducted. Over the course of 10 years, total accumulated income would equal 100×10= 1000 rps, and taxed amount from these years would equal 35×10= 350 rps. Notice that 350 is 35% of 1000. Meaning that regardless of whether income was taxed for one year or 10, taxed percentage remains constant at 35%. Taxed amount would be proportional to the taxable income, in this case the profit we have been referring to. In equation form this can be written as Income Profit x Tax Rate = Taxed Amount.
Now I am not sure how we arrived at the figure of 70%, but 70% is….. tyranny. A blanket policy of collecting that much of an amount will significantly encourage society as a whole to evade declaring assets and transactions. Those who might be taxed would face the prospects of being liable for an amount much larger than their current assets if the said wealth over the years has been spent on schooling, clothing, housing, travel, health etc. All such spending is expensive in nature no thanks to the ineptitude and misdirected priorities of a government which simply does not understand what it human welfare entails. They are out of touch with reality and it doesn’t even bother them that only a few can afford to taken care of themselves by visiting London every other month.
I wish not to rant any further, but as an educator and economics student, my view of governance is greatly affected by the daily problems of the common man. I would urge the government to follow rule number 1 of policy making, EVALUATION and RESEARCH instead of announcing broad stroke “reforms”. I would be patient for now and hope that civil activism in the courts would allow the rule of law to prevail.
I am an ordinary citizen, who will be answerable to Allah along with you all when the day comes, I pray to him to guide us towards justice in all manners of life, including economics, which can not preclude the Panama issue.
Your calculation of 350% is unrealistic.According to this calculation if a person buys a plot in 10 lac in 2006. Now every
Year it’s price will increase by 10 lac definitely, which is unrealistic.The price may increase ,decrease or remain static.
Mr. Ishaq Daar, ( the innovative mind behind this genius idea) needs to first make a mechanism to investigate his own master and his tax matters before shaking the real estate market (the only market doing some business in this country where no foreign investor likes to invest a dime). Do they have any moral authority to ask for money from public? Solve your panama leaks before starting new adventures Mr. Ishaq Daar
Can you share the FBR press release or link
Apna maal jo panama leaks main pakra gaya uska hisab to de nahi rahe, awam k maal ki fikar kion lagi hoi. Itnay ghatya log history main pehli dafa introduce ho rahe.
Bad news really ?.
Let us all wait for the situation to get clear .Right now i believe taxing black money is a good thing as long as it is aimed at the corrupt and tax evaders. Any such policy will have very positive impact on the economy of Pakistan and real estate sector in the long run.
Let us be clear on a few facts :
1. Prices in developed areas are not subject to investment of black money, rather are more dependent on there expected rental returns and genuine market growth.
2. In previous 3 months property prices in DHA Lahore have increased by 20 to 30 % and we still see everyone willing to buy at higher price. A higher tax rate may just add to the property price in developed areas.
3. Investment oriented un-developed real estate sectors such as 9 Prism , which do not give you any genuine yield , rather are dependent on the “greater fool theory” may actually suffer from these new taxes.
4. The prices of real estate does not depend on the taxes on it rather depends on the purchasing power parity.
Case Study :
The price of commercial real estate in Broadway Phase 8 is determined by its possible rental value.
Average Price of 8 Marla Plot: 100,000,000/– (100 Million)
Cost of construction : 30,000,000/–(30 Million)
Expected Rental Value per month = 700,000 /–
What should you be expecting?
It will be a very good news for genuine buyers . Bad news for investors who are cause of market bubbles in real estate.
Yes you will see less real estate transactions however if files are exempted we may see prices hike.
All in all nothing to panic, stay calm . Short term and Black market investors moving the market high or low will have no impact on any genuine buyer. The real estate will just shift to long term trading rather than short term investments.
Nothing more than creating more hurdles for a common man
Appreciate your very informative work here in this blog !
Could you please throw some light on following :-
Dont you think Taxing plots/properties from last one decade will also be affecting big wigs of Judiciary / Media / Services / politicians /Beaurocrates etc as they have also owned /invested heavily in expensive properties of metropolitan cities.
Secondly, wot would be the use of all this new tax regime if all taxes /fines burden will be placed on end user /buyer in form of increased sale price from seller /investor ?
Looking forward to your valuable insight re couple of above mentioned points.
Thanks & Regards
I think this is a very smart move by the team concerned to disturb the economy meanwhile benefiting their own businesses. Following may explain:
1. Our forces are the largest stake holder in real estate (DHA, Fazaia, Askari…) and lets not ignore the fact that most our officers invest in real estate. Not to ignore bitter relations of MR and CM.
2. Capital flight form country. Usually the time around two Eid’s is major time for foreign investments inflow, this is a great timing to disturb those investments in Pakistan.
3. The intention is to make people invest in controvercial projects like LDA City as there are no taxes involved in open files. And those investments will ultimately befit the corrupt people in power.
4. Most importantly, this maybe just to bring property prices down for a short period of time so that the agents can do some buying for them and then they will lift this law and prices will escalate again (this is their shameful mentality they have been doing this time and again in many sectors to benefit their own business – last time when they were unable to achieve their mutton export targets they used the food authority to create panic in the market and mutton prices dropped.
Let see Farhan we can expect any third class move from these third class politicians.
right or wrong but definitely a different perspective.
Government should brought up those housing schemes in tax net who does not pay a single penny tax on property transaction since they are born , if government successfully on get those housing schemes and start from 2006 It granteed that the it will give billions of dollars tax default and PAKISTAN not have to knock the door of IMF but it’s unfair not to get that schemes in tax net , and only pinilize the legal schemes.
I was at CDA office on the day this new law took effect, it was the last Friday of Ramadan and each and every clerk and offical of CDA were taking bribes their faces like drooling with their tongues hanging out. These evil people made us sit around for five hours in horrible heat, then asked us for our ID cards and later refused to return ID cards unless we paid bribes of Rs 5000 each. After taking bribes these evil men went out and did wudu and said their Friday prayers. Allah’s curse is on such people and this corrupt nation, nothing will work here because from the prime minister to the shopkeeper all people are corrupt. I have decides to return back to Australia after seeing this evil people.
i believe there will be two outcome of this newly imposed antiinvestor brutal TAX LAW.
1) Either it wil prove last nail inthe coffin of this government
2)or soon we will see a new TAX amnesty scheme Nation wide
Instead of attracting more money from international investors, he has devised a plan to simply repel them.
What an idiot!
Overseas Pakistanis are sending Billions to invest in market in Pakistan. This will definitely discourage me personally to invest in any further project in Pakistan. Who the hell gona pay 35% tax? I would rather invest in UAE for 0% or in worst case in UK 20% through my company. Please Elect Sharif Family again next time.
It’s already back to square 1 as it was a fairy tale type of law being planned without any process
Regarding property trading business, government decision to impose new taxes / evaluating property on current market values for taxes, ultimately will be a extra burden on end user and will not affect investors. Govt took decision on the basis of Geo Program “Aj Shahzeb Khanzada kay sath” without proper deliberation with concerned quarters. They never think that what will be the impact of these taxes on common man and end user.
Due to this decision, property values will be increased and dream to have sweet home for a poor common man will remain dream. It seems that big investors will go to the safe tax heaven like Dubai to invest and Pakistan may face great capital flight situation.
Keeping in view the conditions, of a common Pakistanis, govt is requested to withdraw this decision immediately and think about other positive steps to tax the black money holders back in tax circle but can’t be possible until our leaders will not be fair with Pakistan and bring back their black money to Pakistan.
Unless the society is weeded out of Corrupt people, all such scenes will be futile and will bear ” ZERO” results. This, it appears, is another scheme to make govt looters fatter than before!
Well said. ..
I can almost bet that this is another “arms twisting” tactics of the government. There is nothing wrong to increase the tax collection and widening the tax net but there is everything wrong with this scheme. It is aimed at spreading a scare in the property markets. It is nothing but an act of “FINANCIAL TERRORISM”! Several years back in a previous regime of theirs, they spread a scare about confiscating dollars and the damage was seen through several years after. Here also, I am sure if some one can do some digging, we will see that their Confidants must have been behind sudden price hike in property prices in past few months to off load their inventory and now spreading this terror has a dual purpose:
a. to collect billions through another Amnesty Scheme.
b. to hurt property sector and bring prices down and to re-buy and pocket huge profits.
Wait till the cat really comes out of bag. At this time its only “Spread the Scare” phase.
If the black money is not to be utilized to pay taxes in the country, let it fly abroad.
WITH NEW SYSTEM IN PLACE, WILL THE GOVERNMENT ACQUISITIONS BE SUBJECT TO THE VALUATION EG FOR METRO AND ORANGE TRAIN ETC. I DO NOT THINK SO. THEY WILL STILL FLEECE PEOPLE PAYING MEAGERLY FOR ACQUIRING THEIR PRICELESS PROPERTIES (THEIR HOMES5000, THEIR LIVELIHOOD).
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.
I am very happy for imposing this new property taxes.I presume that after applying this new system ,Govt will not only received the handsome tax amount but it shall also decreased the property value,to enable the poor and needy persons to have their own house.
As for as Govt Offices working conditions are concern,There are few departments /Offices which have improved there working ,for example L D A office.I have my personal experience that I applied NOC for my plot at LDA Avenue-1.I got it after few days after the mentioned period without paying any EDI to any staff.This is all because of the Hard working Chief Minister of Punjab and off course LDA chairman to whom I dint know.This need more efficiency in working but it is good and to be appreciated.
With no offense your comparison of real estate market with corporate tax rate does not seem fair but in fact lacks some critical in formation or you intentionally ignored or overlooked it.
Do you know the amount of taxes paid for registration of a plot ? and that is on the value of the land not income (so how can you compare both), let me see the reaction of corporate sector if they are charged with 35% tax on equity plus 35% penalty on equity …not INCOME.
Secondly multiply the amount of tax charged on the value of the plot by the number of times the plot is sold, it’s huge revenue.
let the fair market mechanism work, if it exists in Pakistan.
wait Gentlemen,
All will be settled as soon as this stupid group of peoples go to spent their LOOTED MONEY in sale or purchase of property OR wait their EXIT.
You are right Mr. Nadeem. I am with you. I think we must all stand up against this corrupt mafia (government) who just want to extract every single penny from our pockets.
Pakistan has third highest corporate tax rate in world with lowest public services values.
http:// tribune. com. pk/story/1017179/world-bank-report-high-tax-rates-heavy-administrative-burden/
Tax paid by people of Pakistan = Corruption of Beauracracy + Debt Servicing + Money Laundering of Politicians.
So nothing comes back to people in the form of acceptable public health services, clean water supply, sewerage management treatment system, Solid wasted management, Traffic management, Transportation services and management etc.
I beg to the Pak Army to kick out these corrupt political parties from Pakistan and drain back the money they have taken away from this country.
Also Judiciary which supports corruption of these political mafias also need a lot of correction.
Their is a property tax, then CGT, then income tax on rent and then on income.
Roads looks like Garbage bins and forest tracks with nalahs. Electricity is not available 24 hours. Electricity prices are like we are living in USA/UK where their earnings are atleast $1000 per month per person.
Are we living in Paradise!!!
Pls can anyone clarify me , if these property evaluation mechanism would implement if i’d buy a residental plot like in a week or two ?
The property value just had a magical boom in scheme 33 karachi , which was quite shocking for us buyer ( not investor ) , now I have been hearing this news that the property value may go down to its original state thanks to this new property evaluation mechanism , Kindly tell me if this has been implemented .
And what is the state of property being may go down significantly in coming months ? Is it true ?
Thanks