Property Tax in Pakistan's 2024 Budget

The 2024 budget of Pakistan brought significant changes to the taxation landscape, especially affecting the real estate sector. The Federal Board of Revenue (FBR) has introduced new property tax rates and conditions that impact both filers and non-filers. Here is a comprehensive overview of these changes and their implications.
Starting from July 1, 2024, the tax rates on the sale and transfer of immovable property have been revised:

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Capital Gains Tax (CGT) on Property & Real State 2024:

 

This tax applies to the profit made when selling a property acquired on or after July 1, 2024.

  • For Filers:

    • A flat rate of 15% applies to the capital gain regardless of the holding period. This simplifies the process compared to the previous system, with varying rates based on how long you owned the property (short-term vs. long-term) and the type of property (open plot, constructed building, etc.).
    • This change could potentially benefit filers who previously might have fallen into higher tax brackets depending on their holding period.
  • For Non-Filers:

    • The new budget doesn’t specify the exact CGT rate structure for non-filers. It mentions a minimum of 15% and a “progressive” system based on holding period.
    • This means non-filers could potentially face a higher CGT than filers, especially if they held the property for a shorter period.
    • It’s crucial to consult a tax advisor once the detailed structure for non-filers is released.

Advance Tax: This is a withholding tax deducted at the source when selling immovable property.

  • For Filers:

    • A progressive rate structure applies based on the property’s value:
      • Up to Rs. 50 million: 3%
      • Rs. 50 million to Rs. 100 million: 4%
      • Above Rs. 100 million: 5%
    • This system ensures higher-value property sales contribute a larger share of tax upfront.
  • For Non-Filers:

    • A flat rate of 10% is imposed on the entire property value, regardless of the amount.
    • This is a significant disadvantage for non-filers, especially when selling high-value properties.

Certain exemptions are available under Section 236C of the Income Tax Ordinance, 2001. These include:

  • Sales by dependents of martyrs from the Pakistan Armed Forces.
  • First sale of property allotted by the Federal or Provincial Government.
  • Properties acquired in recognition of services rendered by martyrs or deceased government employees  

Non-Resident Taxation

Non-residents holding Pakistan Origin Cards (POC), National ID Cards for Overseas Pakistanis (NICOP), or CNICs, who acquired property through Foreign Currency Value Accounts (FCVA) or NRP Rupee Value Accounts (NRVA), are also subject to this tax. The tax collection mechanisms and rates are similar for these individuals

Overall Impact:

  • Filers generally benefit from lower tax rates on both capital gains and advance tax.
  • Non-filers face a potentially higher tax burden due to a flat 10% advance tax and a potentially higher CGT rate depending on holding period.

Recommendations:

  • Filing your income tax returns is highly recommended, especially if you plan to sell property, as it unlocks lower tax rates.
  • Consult a tax professional for personalized advice based on your situation, including property details, holding period, and filing status.

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