Whether you’re moving to Pakistan or already there, you might well be tempted to look into buying property in the country. If you do so, you’ll find that property tax is a concern for Pakistani citizens and foreign residents alike. Here’s all you need to know about property tax in Pakistan.
Property tax is technically any tax that you pay because of property that you buy, sell or own. They include sales taxes that you pay when the purchase is made and maintenance taxes that you pay every year.
In Pakistan, the system is no different: a variety of taxes are payable on property. Here’s a look at each of the main ones.
Everyone who buys, sells or owns property in Pakistan will probably have to pay property tax, although the details of which ones you’ll have to pay - and exactly how much they are - vary considerably. The rules also vary between the different provinces of Pakistan.
There have been many changes to Pakistan’s tax policy in recent years, both at the federal level and in the provinces. Part of the reason for this is that a very low percentage of Pakistani residents file income tax returns - which is also why certain taxes are charged at different rates, depending on whether or not you file your taxes. What this means is that you should check all the information carefully with a local professional who can advise on the latest rules in your area.
It’s possible for foreigners in Pakistan to buy property, although there are administrative hurdles in the process. As for tax: expats are no different from Pakistanis in terms of their tax liability, although it’s worth remembering that you only need to pay tax on income gained in Pakistan - foreign income isn’t taxed by the Pakistani authorities. So even if you’re not earning any income in Pakistan, it’s still worth filing a tax return with 0 income as that will save you from having to pay many other local taxes.
Property taxes can be broadly put into two groups:
- Sales taxes, which are paid when a property changes hands
- Maintenance taxes, which are paid regularly
In Pakistan, there are examples of both. Here’s an introduction to each of them in turn.
Sales taxes are the taxes you pay on property when you buy or sell. There are numerous relatively small sales taxes in most Pakistani provinces:
- Stamp duty
- Capital value tax
- Registration fee
- Town tax
- Withholding tax
However, you should bear in mind that there are substantial differences between the various provinces in Pakistan, so you should check exactly which taxes are payable in the area in which you’re buying, as well as how much they are. The below is a general guide but many details can vary substantially.
For example, in Punjab - the most populous province - there was a major overhaul of the property tax system in 2017, in which stamp duty, capital value tax and the registration fee were merged together into one tax which is now known overall as stamp duty.
Most of the above-mentioned taxes are for the buyer to pay, but withholding tax may be paid by both buyers and sellers. For sellers, capital gains tax is also a consideration.
Stamp duty is a tax to pay the province. It’s generally 3%, and it’s paid by the buyer.
You might find, for instance in Punjab or other urban areas, that the ‘stamp duty’ fee also encompasses other payments due, including capital value tax and the property registration fee. In that case, the figure payable might well be more than 3% - it could be 5% instead.
In your province, CVT may end up falling under the banner of stamp duty, but if not, you may have to pay it separately. It goes to the central government. CVT is generally a tax of 2% of the property value, paid by the buyer.
You might not have to pay it if your property is under a certain size.
Both of these fees are 1% of the property value. They may or may not be payable separately, depending on where you are. In Punjab, for instance, the registration fee is part of the stamp duty bill.
A withholding tax is one that’s paid directly to the authorities, without the involvement of a second party.
- Both buyer and seller are liable for paying withholding tax on a property transaction
- Buyers have to pay 2% if they file an income tax return, or 4% if they don’t
- Buyers only have to pay withholding tax if the property is worth more than Rs 4 million
- Sellers have to pay 1% if they file a tax return, or 2% if they don’t
- It’s paid to the federal government rather than the local authorities
- You have to pay this tax at the same time as you pay the rest of the transaction fees
- Withholding tax is an ‘advance tax’, meaning that it can be claimed back when you file your tax return - you can deduct this from the rest of the taxes you owe
Capital gains tax is paid on the profit you make on a property - that is, the amount you sell it for, minus the amount you paid for it originally.
- The rates for capital gains tax have changed considerably in recent years, so make sure to check the latest figures.
- For the 2017-2018 tax year, the rate to pay varies between 0% for properties acquired before July 2013, and 20% for properties acquired since July 2016. The 20% is only for those who don’t file a tax return. Otherwise the top rate is 15%.
|Property worth over Rs 4 million||Property worth under Rs 4 million||Buyer||Seller||Cost|
|Stamp duty||✓||✓||✓||3%- 5%.May be higher if it includes other fees.|
|Capital Value Tax||✓||✓||✓||2%. May be part of stamp duty bill.|
|Registration fee||✓||✓||✓||1%. May be part of stamp duty bill.|
|Withholding tax||✓||✓ seller only||✓||✓||Buyer: 2% or 4% Seller: 1% or 2%|
|Capital gains tax||✓||✓||✓||0%- 20% of profit|
As well as taxes to pay when buying or selling a house, home ownership comes with a tax burden as well. In Pakistan there are two principal property maintenance taxes to be paid regularly:
- ‘Property tax’
- Rental income tax
All the taxes discussed on this page are property taxes, but the specific tax called ‘property tax’ is a maintenance tax you pay your province on a recurring basis.
- The amount of property tax you have to pay varies between the provinces
- It might be at a flat rate, although in some provinces it’s taxed progressively.
- In some places, it can be as high as a 25% flat rate of the annual rental value
- In Punjab, for example, the rate is 5% of the annual rental value
- This is a tax paid by the owner of the property
- Payment times and methods are dependent on the province
In Pakistan, you have to pay tax on any money you gain from the property, so if you rent it out there’ll be tax to pay on the rent unless the gross amount from the rent doesn’t exceed Rs 200,000.
- Rental income is taxed progressively, so the rate you pay depends on the total amount you’ve received.
- The rate goes up to 20% of the gross amount of rent received.
- For larger totals, there's also a fixed fee.
- For instance, if you earn between Rs 600,000 and Rs 1 million, you pay 10% plus a fee of Rs 20,000.
Taxes are an important part of the fees you’ll need to pay when buying or selling a property, but there will certainly be other costs to bear in mind as well - above and beyond the actual buying price. These might include agency fees and legal fees, and will always vary depending on the details of the sale.
The percentage of people in Pakistan who pay income tax is notoriously low, but there are good reasons to still file your taxes, especially if you’ve recently bought or sold property.
- You should be able to claim your withholding tax back, as part of your tax return.
- As mentioned above, the rate of withholding tax that you pay also varies depending on whether or not you submit a tax return - if you do, you pay less.
- Check with your local province to see if there are further deductions you can claim on taxes.
The tax year in Pakistan runs from the 1st of July to the 30th of June: income tax returns should be filed after the tax year ends. Sales taxes should generally be paid when the rest of the sales fees are paid.
(Source 30 December 2017)
The methods of payment for sales taxes largely depend on your province, as they all have their own system for collecting the tax that’s due. You should find out about how to pay your taxes as soon as you get involved in the property market.
For income tax, you may well be able to pay online.
Whether you’re paying income tax or a sales tax bill, you should consider paying online if you can: it can save a lot of hassle and give you greater peace of mind.
If you’re not in Pakistan 100% of the time, you might regularly find yourself trying to figure out how to deal with finances in multiple countries, especially if you need to transfer a bigger amount of money into Pakistan. If you transfer money into or out of Pakistan via a bank, you may lose around 4-5% to the banks because of the markup they put on the exchange rates. And that’s not to mention the fixed fees they often charge as well.
TransferWise, however, only ever offers the mid-market rate - the only exchange rate that’s fair - and the one low fee that you have to pay is always stated clearly upfront. It generally works out considerably cheaper than an international bank transfer - take a look now to see if you could save some money with TransferWise.
So, whether you’re paying your tax bill directly through TransferWise - check that they accept payments from third parties first - or simply moving money into your own Pakistani bank account before paying the bill, TransferWise might be the answer to your problems.
Taxes are never easy, but there’s no need to make them harder than they have to be. That’s why it’s worth finding out all you can about property tax in Pakistan, and checking the best way to pay it.
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