The Impact of Tax Reforms on Pakistan’s Property Market
Pakistan’s Real Estate Sector and the Impact of New Property Taxes (2024-2025)
Real estate is a major contributor to Pakistan’s GDP and a significant source of government revenue through taxation. Historically, this sector has been a prime target for tax collection efforts. In the 2024-2025 federal budget, several new property tax measures were introduced, regulated by the Federal Board of Revenue (FBR). These taxes vary depending on an individual’s tax status filer, late-filer, or non-filer.
With the implementation of these new tax measures, their influence on the real estate landscape is becoming increasingly visible. Here’s a breakdown of the main taxes and how they affect the market.
Overview of Property Taxes in Pakistan
- Capital Gain Tax (CGT): CGT applies to the profit earned from selling real estate. As of July 1, 2024, the revised rates are: Filers: 15%Non-Filers: Ranges from 15% to 45%, depending on property value (as determined by the FBR). Notable Changes: Previously, CGT was based on the duration of property ownership and property type. Now, the rate is uniform, regardless of how long the property was held or its classification.
- Advance Property Tax (Withholding Tax): This tax is imposed on both buyers and sellers during property transactions and is due at the time of registration or allocation. Applies to both residential and commercial real estate.
New FBR rates vary by filer status
Advance Tax on Sale or Transfer:
Advance Tax on Purchase:Property Value Filer Late Filer Non-Filer Up to 50M 3% 6% 10% 50M – 100M 3.5% 7% — Over 100M 4% 8% —
Recent Changes:Property Value Filer Late Filer Non-Filer Up to 50M 3% 6% 12% 50M – 100M 3.5% 7% 16% Over 100M 4% 8% 20% - Expanded Scope: Previously, tax was collected up to possession. Now, it applies from the point of booking through to allocation or balloting.
- Installment Options: Buyers can now pay the advance tax in installments.
- Income-Based Impact: The amount may also depend on the buyer’s annual income.
- Capital Value Tax (CVT): CVT is imposed on the transfer of immovable properties like land, homes, and buildings, typically paid by the buyer. Current Rate: 2% of the property value, as per the Federal Act of 2006.
- Federal Excise Duty (FED): FED applies at the stages of booking, allocation, or transfer.
- Rate for Commercial and Residential Property: 5%.
- Residential FED: Only applicable to the first buyer at booking.
- Reduced Activity: Higher taxes, particularly for non-filers, are discouraging transactions.
- Falling Prices: Sellers are cautious, leading to a general dip in market prices.
- Changed Buyer Preferences: Buyers increasingly favor transacting with filers to reduce their tax exposure.
Conclusion
The updated tax regime has stirred debate over its effect on real estate in Pakistan. Despite the hurdles, real estate continues to be a vital component of the economy and a strong source of public revenue. Long-term sector growth will depend on effective tax compliance and consistent policy enforcement.
About Us
TF CMA decided to start this company because we saw that most Pakistani taxpayers were struggling with the burden of paying their taxes. They were spending too much time and money on paying their taxes and making sure they complied with all legal requirements. At taxfiler CMA, we are working hard to make it easier for our customers to comply with all legal requirements and pay their taxes quickly and easily.
