Pakistan recently introduced a new tax on property that has raised concerns among investors and businesses. The tax has been designed to target the real estate sector and aims to increase revenue for the government.
As with any new tax, there is a lot of confusion and ambiguity surrounding its implementation and impact. In this article, we will take a closer look at the new tax on property in Pakistan and what you need to know to make informed decisions about your investments and businesses.
Pakistan’s real estate sector has been booming over the past decade, with property prices skyrocketing in major cities such as Karachi, Lahore, and Islamabad. However, despite the growth in the sector, the government has been struggling to increase revenue through taxation.
In July 2021, the government introduced a new tax on property as part of its budget for the fiscal year 2021-2022. The tax is aimed at increasing revenue for the government and improving the documentation of the real estate sector.
The former property tax system used obsolete rates that hadn’t been revised in decades. The new system aims to bring greater transparency to property transactions and ensure that property owners pay their fair share of taxes.
Types of Property Tax
Pakistan’s new property tax includes FBR and PRA taxes. The FBR tax applies to properties worth over PKR 5 million in value, while the PRA tax applies to properties worth less than PKR 5 million. Both taxes are calculated based on the fair market value of the property.
How the Tax is Calculated
The new tax on property in Pakistan is calculated based on the fair market value of the property. The fair market value is the price that the property would sell for on the open market.
To calculate the tax, the property is first valued by a government-appointed valuer. The valuer determines the fair market value of the property, which is then used to calculate the tax.
The tax rate varies depending on the value of the property and the type of tax being paid. The FBR tax rate ranges from 1% to 2% of the property value, while the PRA tax rate ranges from 0.25% to 1%.
Impact on Real Estate Sector
The new tax on property in Pakistan is expected to have a significant impact on the real estate sector. The tax is designed to bring greater transparency to property transactions and improve documentation.
Several analysts worry that the new tax will lower home values and impede the real estate sector. They say the tax will raise house prices and dissuade investors.
Exemptions and Rebates
The new Pakistani property tax has worried investors and homeowners, although there are exemptions and rebates.
Homeowners who dwell in their own property are exempt from FBR and PRA taxes.
In addition, the government has also announced rebates for individuals who invest in the real estate sector. The rebates are aimed at promoting investment and are expected to provide some relief to investors.
Compliance and Penalties
It is important for property owners to comply with the new tax on property in Pakistan to avoid penalties and fines. The government has set up a system to monitor compliance with the tax and has announced strict penalties for non-compliance.
Property owners who pay late or submit incorrect information may be penalized 100% of the tax payable. The government has also warned tax evaders and asked property owners to pay.