Excise & Taxation – A Guide for Property Taxes in Pakistan

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One of the duties of being a responsible citizen is to pay taxes on time.

Yes, it is true! Your taxes run the government; honestly, if we start paying taxes timely, most of our problems will be solved.

One of the hindrances to Pakistan’s development is the tax-evasion. This, in return, depletes the country’s resources and disturbs the overall economic ordeal.

Talking about property taxes, in 2021, more than 3,400 housing societies were out of the tax net, widening the tax gap; in 2019, 11,723 societies were collecting taxes from the clients but failed to deposit them in the national kitty.

Sadly, in Pakistan, less than 1% of people pay their property taxes.

So, what happens when taxes are being held?  

It creates a shortage of money for the government to invest in different sectors, including the city’s infrastructure, security, education system, healthcare, and many others. Failing to meet the country’s budget, foreign-funded loans need to be applied, often at high-interest rates.

Well, if you’re planning to invest in Pakistan, especially in Islamabad or elsewhere in Punjab, this property tax guide will help you manage your investment portfolio accordingly.

Stress not, if you’re not well aware of the basics of property taxes, we have tried to cover every aspect of the excise and taxes in detail.

Property Taxes in Pakistan 2023

It’s a percentage of the money that any property owner has to pay against a property being bought/sold. Here, the word property includes the house you are living in and all the other properties you have, in the form of plots, offices, farms, warehouses, etc.  

Currently, the deemed income is computed as 5% of the Fair Market Value of the immovable property. The rate of tax on the income is 20%.

Types of Property Taxes in Pakistan

Now let’s discuss the types of taxes in Pakistan;

Capital Value Tax

FBR sets the price of Capital Value Tax (CVT). The District Commissioner offices all over the country set the official property rates. According to the 2006 Finance Act, Capital Value Tax is levied at a 2% rate of the value.   

According to the 2006 Finance Act, CVT is charged when you purchase any property. CVT is set at a rate of 2% of the recorded amount. However, the CVT for urban areas is also 2%, and according to the new budget, the stamp duty will be 3%.

Stamp duty is the amount paid for the legal documents of the property.   

Capital Gains Tax

One more type of Tax is capital gains tax. This tax is imposed on companies or individuals when they sell any of their capital assets, including land, stocks, or something else.

CGT is applied according to the Finance Act 2017, on the property you sell within three years of its purchase. Three different tax rates are imposed: for the first year, it is 10% and 7.5% for the second, and you have to pay 5% if you sell the property during the third year. 

Capital gains tax is the opposite of capital value tax as this is imposed on the property you sell. As the name of this tax shows, this tax is levied to the profit gained by the seller. 

Pakistan’s finance act of 2017 also claims that this Tax will only be applied when the property is sold within the first three years after the acquisition. 

Withholding Tax

This Tax is the amount that is deducted by the employer from the employee’s wages and then pays directly to the government. Another name for withholding Tax is income tax, and its rate is 12.5 percent when the person is a filer for the tax return of Pakistan and 20% for non-filer residents of Pakistan. 

The withholding tax is a combo of CGT and CVT. It is the amount that every seller and buyer has to pay when a property is sold.

There is a vast difference in the tax bracket for non-filers and tax filers. And this difference is created so that more and more people become tax filers.

How to Calculate Property Taxes in Pakistan?

To calculate the correct amount of your property tax, you need to evaluate all of your tangible assets. 

According to the type of building and nature of the occupation, and inspection of properties, the tax is calculated.

Property tax is charged on the annual value of the properties, and it is charged according to the rates mentioned above.

When to Pay Property Tax in Pakistan

You can deposit the property tax before 30th September of every year; you will get a rebate of 5% of the tax for the current fiscal year. There are 30 days allowed from the date of filing of the Demand Notice assorted with the Challan Form.

You can pay the tax from the specified branches of the National Bank of Pakistan. Tax payment cheques can be drawn in favor of the Excise and Taxation Officer of the District, along with the Challan Form. 

Rebate and Surcharge

Surcharges are additional payments that you have to reimburse on your taxes. While a rebate is a refund you get for paying extra in the form of utility, rent, etc. 

You get a rebate of 5% on the amount of annual Tax if you pay your taxes before 30th September.

However, 1% of the payable Tax is charged as a surcharge on delayed tax payments. And this surcharge is applied on the first day of every month after 30th September till the time tax is not paid.

Which Properties are Exempted from Property Tax?

There are specific classes of assets that are free from taxes. These include:

  • A residential home built on less than 5 Marla, and apart from the locality of category “A.”
  • Property that is not capable of generating annual rent more than PKR. 4320/-
  • Residential property not presiding over an annual rent of more than PKR. 6480/- even if the owner resides in their residence.
  • Properties under the name of a physically challenged person, widows, minors, orphans, etc., are exempted from a tax liability up to PKR. 12150/-
  • Residential house built in one Kanal area, and owned by a Federal or Provincial Retired Government officer, is exempted from tax liability.
  • Religious buildings, like Mosques.
  • Properties for the general public, like parks, schools, hostels, hospitals, and playgrounds.

Types of Property Tax Notices

You need to know that the government issues four kinds of tax notices.

P.T – 10

Talking about this Challan, you should be aware that it is created in the assessee’s name, along with the property number, current financial year tax amount, any arrears (if incurred), and the last date of the fee submission is mentioned.

The assessee must pay the amount mentioned in this Challan before the last date. This amount can be deposited in the National Bank of Pakistan or the State Bank of Pakistan. This Challan is further sent to the E&T department, where the amount is entered in the registered.

Apart from that, a copy of this Challan is also sent to the E&T office for proper entry of receiving at the appropriate time so that no further notice is sent to the assessee.

P.T – 11

In PT-10, when the assessee does not deposit the tax amount in the provided time, there will be a penalty equal to the amount of Tax imposed upon them. In PT-11 notice, the assessee is allowed to appear personally and claim that the delay of the taxation was not done willingly.

The assessee needs to inform the authority about the reason for not paying, and after that, there will be no penalty for them. 

P.T – 14

This notice gets issued when the property owner does not pay Tax on time, and this notice is sent to the renter of the house to pay the tax liability in the Government Treasury till the owner of the property clears the tax liability.

So PT-14 is issued to the renter, who must deposit the tax liability on Challan PT-10. 

P.T – 13

The notice PT-13 is issued when the ETO/AETO (The Assessing Authority) gets the notice about changes in the possession, ownership, or description of any property.

PT-13 is a notice for changes. However, if the person receiving the notice does not file an objection in the office within 14 days, the proposed changes will be confirmed.

How to Pay Property Taxes in Pakistan

In Pakistan, there are three easy ways to pay your property taxes;

  • You need to look for the city’s tax department, as every province has its respective tax collection department.
  • You can generate an online property tax challan and then pay them in banks.
  • Online banking systems can be used for transferring your tax payments.

Winding Up!

Brackets of property tax differ in every province of Pakistan, and you need to pay the property tax according to your respective province’s regulations. 

Pay tax today, so that your next generation will be in a better condition; for a better tomorrow, be responsible from today!