ISLAMABAD: The government may double the tax burden of sellers and purchasers on transfer

of properties in addition to fixing a flat 10% tax rate on gains made on sale of properties within
five years of holding period.
Sources said Finance Minister Ishaq Dar has cleared a budget proposal to increase the tax burden
of both filers and non-filers of tax returns on transfer of the properties to generate Rs13 billion in
revenue.
Pakistan agrees to slap billions in new taxes
If approved by Prime Minister Nawaz Sharif, the government may double withholding tax rate to
1% for those sellers who are filers of income tax returns. For sellers who are non-filers, the
proposed withholding tax on transfer of properties is 2%, according to sources.
Similarly, the government may also double withholding tax rates for purchasers on transfer of
properties. Currently, purchasers who file income tax returns pay 1% of the value of the property
in withholding tax. According to the budget proposal, this rate will be increased to 2%.
Withholding tax on non-filing purchasers will be increased to 4% from the current 2%, sources
added.
However, any decision to increase taxes for filers of income tax returns in the new budget goes
against Finance Minister Ishaq Dars commitment. While addressing a pre-budget seminar, Dar
assured the government would not put extra burden on existing taxpayers in the new budget.

The Federal Board of Revenue is of the view that since market prices of immovable properties
have increased manifold, these people should pay extra taxes.
Budget 2016-17: Several income tax benefits expected in budget speech
Tax authorities also argue that withholding taxes on sales and purchases are based on district
collectors (DC) rates, which are very low when compared with market rates of these properties.
DC rates vary from district to district, area-to-area, size, and location of property, buyer and
sellers position and terms of dealings.

After coming into power, the federal government had vowed to revise DC rates of property
valuations in consultation with provinces. Despite the lapse of three years, the government has
not yet fulfilled this promise.
CGT regime
The government may also revisit the tax regime for Capital Gains Tax (CGT) on immovable
properties. Currently, there is no tax on capital gain from immovable property, if it is sold after
two years of property acquisition.
However, if the property is sold within one year of acquisition, the person has to pay 10% of the
gain in CGT. If the holding period is up to two years, the person has to pay 5% of the gain in
taxes.
Sources said Dar has cleared a proposal to replace this regime and now a flat 10% tax will be
charged, if the properties are sold within five years. The revenue impact of this proposal is about
Rs5 billion.
The authorities argue that people postpone transactions beyond two years to avail CGT
exemption. Secondly, brokers obtain transfers on power of attorney and execute transfer after
two years to avoid the taxes.
Govt may increase tax on dividend income to 20%
The authorities have also proposed to bring family homes in the jurisdiction of the proposed new
regime, which are currently exempted from CGT.
The World Bank (WB) has also asked Pakistan to withdraw CGT exemption on transfer of
properties beyond two years.
Tax authorities say the lack of a mechanism for proper valuation of immovable properties is one
of the major hurdles in judicious taxation of capital gains. WB has recommended Pakistan to
either create an independent valuation authority or adopt the right to acquire sales like India.
However, due to presence of a strong real estate lobby in the federal cabinet, the government is
reluctant to accept such proposal. The other issue is the jurisdiction, as provinces also have the
right to tax properties.
The World Bank had proposed that the market value of the property should be determined
without regard to the values use for different purposes by provincial governments. Sources said
the federal government might adopt the WBs recommendation to the extent of Islamabad
Capital Territory (ICT) in the new budget.

Published in The Express Tribune, May 26th, 2016.

ISLAMABAD (Dunya News) Government on Wednesday has proposed new income tax laws
according to which the government will decide property rates, reported Dunya News.
In the light of new income tax, the government has imposed new laws to catch tax evaders
depicting different unofficial property rates. Federal Bureau of Revenue in this regard had been
assigned to unveil black money spent in the business.
The amendments in income tax ordinance section 68 will be implemented from Friday.
Moreover, the very tax will not be functional on those owning one residential property.
The amendment stated that assessment of sales value will be decided by the federal, income tax
commissioner, bankers and chartered accountants will assist the government in this regard.
The board had also been authorised to call for third-party or State Bank experts assistance for
property evaluation.
Experts stated that tax will be imposed in accordance if the property rate came out to be more
than the value decided by deputy commissioner or prescribed by the board.

ISLAMABAD: An important amendment has been made to Section 68 of the Income Tax
Ordinance 2001 through the Finance Act 2016, which will be effective from July 1.
Under the amendment, the property evaluation rate set by the provincial governments will no
longer remain relevant.After that, all investors will have to get their properties evaluated through
the valuers of the State Bank of Pakistan (SBP) under a new mechanism.
One or more valuers of the SBP will fix the real market value of the immovable property and
refer it to the FBR Inland Revenue Department.This amendment will do away with the informal
economy or black economy in the real estate sector to a great extent.
It will not only bring black money into the tax net but also put high penalties on tax evaders
under Section 192-A.The penalties can amount to 100 percent of the evaded tax. These will be in
addition to the additional tax imposed on the evaders.
This amendment will direct unproductive investment to industry and as a result add to the Gross
Domestic Product (GDP), creating job opportunities.According to an estimate, at present about
Rs30,000 billion of black money is being used in the sale and purchase of property.
-Originally appeared in The News

Understanding Property Tax Rates in Pakistan

October 3, 2014 Taxation

46

For every one of us who owns property in Pakistan, the time of the year when property taxes are
due is always accompanied by some measure of apprehension. Taxes are often difficult to make
head or tail of, and it is more than understandable if you are a little freaked out. But rest assured,
Zameen.com is here to help!
Property taxes are levied on both commercial and residential buildings and land by the provincial
governments of Pakistan. The Excise & Taxation (E&T) Departments of the provincial
governments release Valuation Tables every year, which provide certain figures based on
different measures for each province, and sometimes for different cities within a province. These
tables use more or less the same formulae in every province to calculate something called annual
value (more on this later) but in different ways, and later on well provide you with links to
explore each provinces formulae in detail.
Take a look at the Residential Property Valuation Table released by the E&T Department of the
Punjab government for 2014 below for example:
RESIDENTIAL
CATEGO RENTED

SELF-OCCUPIED

RY

RATE OF
RATE OF LAND
RATE OF LAND
COVERED AREA
SQ. YD. (IN
SQ. YD. (IN
IN SQ. FT. (IN
PKR)
PKR)
PKR)

RATE OF
COVERED AREA
IN SQ. FT. (IN
PKR)

Up to Exceedi Up to Exceedin Up to Exceedi Up to Exceedin

500
ng 500 3,000 g 3,000 500
ng 500 3,000 g 3,000
A

23

18.4

23

18.4

4.6

3.68

4.6

3.68

17

13.6

17

13.6

3.4

2.72

3.4

2.72

14

11.2

14

11.2

2.8

2.24

2.8

2.24

11

8.8

11

8.8

2.2

1.76

2.2

1.76

8.2

6.56

8.2

6.56

1.64

1.31

1.64

1.31

6.5

5.2

6.5

5.2

1.3

1.04

1.3

1.04

3.2

3.2

0.8

0.64

0.8

0.64

At first look, this table seems difficult to understand and plenty confusing. Property taxes seem
really complicated because there appears to be a lot of calculation and legal jargon involved.
They are not nearly as complex in reality, though. So take a deep breath and let us walk you
through this table step by step.
DETERMINING THE TAX AMOUNT
Property tax is levied on the annual value of land and buildings. In Punjab, for example, the tax
is levied at the rate of 5% of the annual value. Simply put, the annual value of a property is the
estimated amount the property would fetch if rented out for a year (12 calendar months).
Calculating the annual value is the only tricky bit in all of this. Once we have this value,
calculating the tax is a breeze.
Other provinces use different rates. The Sindh government, for example, taxes properties at the
rate of 25% of annual value. This seems huge when compared to the rates in Punjab, but the
prescribed figures to calculate annual values issued by the Sindh E&T Department are
correspondingly lower, so the final tax amount comes roughly within the same bracket.
The numbers provided to calculate the annual value of a property vary from category to category
and from size to size, as well as depending on whether it has been rented out or is occupied by
the owner in the case of Punjab.

Annual value is calculated in four steps:

i)

(Total Land Area of a Property) x (Per Yard2 Rent Prescribed in Valuation Table) = A

ii)

(Total Covered Area of a Property) x (Per Foot2 Rent Prescribed in Valuation Table) = B

iii) (A + B) x 12 = Gross Annual Rental Value (GARV)

iv) GARV 10% of GARV = Annual Rental Value (or annual value)
Residential
The Valuation Table above gives us all the necessary information to calculate the tax, so using it,
lets calculate the property tax for a single-storey 1-kanal (500 yard2) home in a Category A area
in Lahore rented out to a tenant, just as an example.
One kanal or 500 yard2 is equal to 4,500 ft2. Lets say the covered area in this home is 3,350 ft2.
So according to the table, land of this size in Category A would fetch PKR 23 per square yard in
rent every month, and the house built on it would fetch PKR 18.40 per square foot in rent per
month.
We know the land area for this house is 500 yard2 and the covered area is 3,350 ft2. Going by the
steps above, the calculation would be:
i)

500 x 23 = 11,500

ii)

3,350 x 18.40 = 61,640

iii)

(11,500 + 61,640) x 12 = 877,680

iv)

877,680 87,768 = 789,912

There you have it. PKR 789,912 is the annual value for the house we chose as an example. Since
the Punjab government taxes property at 5% of annual value, the tax due would be:
0.05 x 789,912 = PKR 39,496
This number might vary slightly if the E&T Department in question taxes covered area and open
land using separate metrics. Nevertheless, the ballpark figure you will get with this calculation
should be fairly close to the real tax sum.
Commercial

When it comes to commercial property, the Punjab governments valuation tables now also
distinguish between Main and Off properties within a category. This refers to the location of
the commercial property, whether it lies on a main road or off a main road. A main road is
defined as a road with the width of 30 feet or more.
Please take a look at the Commercial Property Valuation Table for 2014 issued by the E&T
Department of the Punjab government:
COMMERCIAL
RENTED

SELF-OCCUPIED

RATE OF
RATE OF LAND
RATE OF LAND
COVERED AREA
CATEGO SQ. YD. (IN
SQ. YD. (IN
IN SQ. FT. (IN
RY
PKR)
PKR)
PKR)

RATE OF
COVERED AREA
IN SQ. FT. (IN
PKR)

Up to Exceedi Up to Exceedin Up to Exceedi Up to Exceedin

500
ng 500 3,000 g 3,000 500
ng 500 3,000 g 3,000
A

Main 120

96

120

96

24

19.2

24

19.2

Of

76.8

96

76.8

19.2

15.36

19.2

15.36

Main 80

64

80

64

16

12.8

16

12.8

Of

64

51.2

64

51.2

12.8

10.24

12.8

10.24

Main 56

44.8

56

44.8

11.2

8.96

11.2

8.96

Of

35.8

44.8

35.8

8.96

7.17

8.96

7.17

Main 40

32

40

32

6.4

6.4

Of

25.6

32

25.6

6.4

5.12

6.4

5.12

Main 30

24

30

24

4.8

4.8

Of

19.2

24

19.2

4.8

3.84

4.8

3.84

Main 20

16

20

16

3.2

3.2

Of

12.8

16

12.8

3.2

2.56

3.2

2.56

Main 15

12

15

12

2.4

2.4

Of

9.6

12

9.6

2.4

1.92

2.4

1.92

96

44.8

32

24

16

12

Now before you get freaked out by the seemingly increased complexity of this table, let me tell
you that everything is practically the same as the residential table, the only difference being the
Main and Off provisions. Lets do another hypothetical calculation so we can get a better idea
of the rates at which commercial properties are taxed. The formula is the same as before.
Lets say for example that you have a 100 yard2 (900 ft2) shop in an off-main-road commercial
area that falls within Category B, which you are occupying yourself. Using the table above, you
can calculate the annual value as follows:
i)

100 x 12.8 = 1,280

ii)

900 x 12.8 = 11,520

iii) (1,280 + 11,520) x 12 = 153,600

iv) 153,600 15,360 = 138,240
According to this calculation, the annual value for such a shop will be PKR 138,240. The
property tax due would therefore be:
0.05 x 138,240 = PKR 6,912
VALUATION TABLES AND OTHER DETAILS
Valuation Tables and/or tax details for the provinces can be accessed through the links below:
Excise & Taxation Department, Government of Punjab
Excise, Taxation & Narcotics Department, Government of Sindh
Excise Department, Government of Khyber Pakhtunkhwa
Excise & Taxation Department, Government of Balochistan
REBATES & EXEMPTIONS
Rebates are incentives that the provincial governments provide to taxpayers at their discretion.
For instance, the Punjab government gives a rebate equalling 5% of the tax amount for paying
the tax in time (before September 30th) and in lump sum. This ensures timely and efficient tax
collection.

All provinces declare specific properties exempt from paying property tax. These exemptions
vary from province to province, and details can be found in the links weve provided above. As
an example, the Punjab government does not tax properties whose annual value is less than PKR
4,320, or buildings owned by widows, minor orphans and/or disabled persons if they meet
certain criteria.
I hope this detailed explanation of property taxes will help you keep calm when you receive your
next tax challan. If you have any questions which Im sure you do given the large amount of
arithmetic in this post please dont hesitate to ask in the comments section below.

Disclaimer: The valuation rates used as examples in this post were taken from the Punjab
Excise & Taxation Departments website. While we tried our best to ensure the figures are up to
date, we cannot guarantee their accuracy. The examples are intended to be only a guide for
readers, so please contact the relevant authorities for up-to-date tax figures in your province.