Tax on immovable property in pakistan – an overview of real estate sector taxation

Tax on Immovable property real estate sector taxation

Tax on immovable property, builders and developers in Pakistan{INCLUDING AMNESTY FOR REAL ESTATE SECTOR}AAMIR RAsHEED rashid, CHARTERED ACCOUNTANTTAXpertsTax | Finance| Corporate | Investment Advisory | Mergers/AcquisitionsContact: 0300-8422327

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An overview of real estate sectorDealing in real estate been historically a profitable venture. After partition allotments of urban properties and agricultural lands made many people super rich over night. However, in later years focus shifted on setting up industrial set ups and town development was usually perceived to be the governments job.In 1980s concept of private housing societies instigated, but as a norm it took 15-20 years for a society to become livable. Few hit projects in 2000s proved game changer and real estate emerged as highly profitable investment. It has changed life of the masses, besides contributing billions to the national exchequer in the form of different taxes.Sector was under scanner for few years due to the abuses:Haven for untaxed money.Huge speculative business i.e. file etc.Unproductive capital allocation.Shift of borrowed funds from other sectors for short term gains.Governments were trying to address the issues by documenting, simultaneously increasing its revenues. Aamir Rasheed, ACA, (TAXperts)

Taxing immovable properties by FBR is ultra virus to the Constitution of Pakistan.

18th amendment to the Constitution authorized federal governments to tax immovable properties. Previously it was a provincial subject. Legal experts are of the view that provisions of ITO 2001 taxing immovable property are ultra virus to the constitution. Case is in the court and the decision may have prodigious impact on all this taxation regime.Aamir Rasheed, ACA, (TAXperts)

Advance income tax u/s 236C (adjustable)

Sales of immovable property u/s 236C

Immovable property allotted to person under sub section (4) of section 236C

Exemptions:If the immovable property is held for a period exceeding three years.Being the dependant of a Shaheed belonging to Pakistan Armed Forces or A person who dies while in the service of the Pakistan Armed Forces or the service of Federal or Provincial Government, First sale of immovable property acquired from or allotted by the Federal Government or Provincial Government or any authority duly certified by the official allotment authority, and The property acquired or allotted is in recognition of or for services rendered by the Shaheed or the person who dies in serviceTax Year 2016 & EarlierTax Year 2017Filers.5%1%Non Filers1%2%0%0%

Aamir Rasheed, ACA, (TAXperts)

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Advance income tax u/s 236K (adjustable)

Purchase of immovable property u/s 236KValue of property above 4 million

Exemptions:Where value of Immovable property is up to 4 million. A scheme introduced by the Federal Government, or Provincial Government or an Authority established under a Federal or Provincial law for expatriate Pakistanis, Provided that the mode of payment by the expatriate Pakistanis in the said scheme or schemes shall be in the foreign exchange remitted from outside Pakistan through normal banking channels.

Tax Year 2016 & EarlierTax Year 2017Filers1%2%Non Filers2%4%


Capital Gain Tax (Previously)Between TY 2012 and TY 2016 capital gain on immovable properties was taxed as under:

Taxation of immovable properties was provincial subject earlier to 2012. Federal government was empowered to levy tax on immovable property after the 18th amendment in the Constitution of Pakistan. This amendment is still pending adjudication before the court.

Holding periodTax year 2012 to 2016Up to one year10%More than one year up to two years5%More than two yearsExempt


Amendments in CGT through FA 2016 and ITAO 2016FA 2016 introduced two major changes in the spectrum:Capital gain tax: CGT was levied at the rate of 10% on sales of properties held for a period up to 5 years and CGT shall be exempt on holding beyond 5 years.Fair Market Value: A new sub section was inserted in Section 68 of the ITO 2001, wherein FBR officer can refer a certain property for its fair valuation to valuators approved by State Bank of Pakistan. To this effect, State Bank has already issued relevant notification along with its approved list of valuators. The bill specifically mentioned that the current Deputy Commissioner (DC) rates did not bind FBR to use it as reference for property valuation.


Fair market valuethe concept and the reaction of stakeholdersFMV concept existed in IT laws since 1993. The commissioners had powers for valuation of immovable properties. However values fixed by provincial authorities (DC rates) were being used as instructed by board.After strong reaction from the real estate sector and elongated negotiations, the stake holders agreed on below amendments approved vide ITAO 2016 dated July 31st 2016:District authorities were barred from valuing immovable properties and FBR was powered to notify FMV. (section 68)Consequential to amendment, the value of:Section 37(2), Consideration received on disposal of property (for calculation of CGT)Division XVIII & Division XVIII of part Division X of Part IV of First Schedule, Value of property for sale and purchase of IP.Section 111, Value of immovable propertyShall not be less than FMV notified by FBR or DC rate, where not notified.In auction cases FMV or auction price, which ever is higher shall be considered.It can be construed from the above that district officer values shall only be applicable where FBR notified values shall not be available.


Capital gain tax (After Income Tax Amendment Ordinance 2016)For immovable property acquired on or after July 1, 2016:

For immovable property acquired before July 1, 2016:

Holding Period of Immovable PropertyTax RateUp to one year10 %More than or equal to one year but less than two years7.5 %More than or equal to two years but less than three years5 %More than three years; the rate of tax is 0 %0 %

Holding Period of Immovable PropertyTax RateUp to three years5 %More than three years0 %


Capital gain taxExemptions and reduced ratesExemption:If the seller is dependent of a Shaheed of PAF or of a person who dies in service of PAF or FG or PG and on first sales of property acquired or allotted as original allottee was exempt.Reduced Rates:CGT on disposal of immovable property by a person to a Rental REIT Scheme shall be taxed at the rate of five percent up to 30-06-2019, irrespective of the holding period.CGT shall be reduced by fifty per cent on the first sale of immovable property acquired or allotted to ex-servicemen and serving personnel of Armed Forces or ex-employees or serving personnel of Federal and Provincial Governments, being original allottees of the immovable property, duly certified by the allotment authority.


IT amendment Ordinance 2016(Amnesty for real estate sector @3%)The government allowed purchaser/investors of immovable properties to legalize/whiten the difference between the FBR notified values of immovable properties and DC rates/registered values. Further amendments made vide ITAO 2016 on November 30th 2016, in addition to the amendments introduced on July 31, 2016:Section 236W. Every person attesting or registering transfer of any immovable property shall deduct tax at the rate of 3% from purchaser or transferee of the amount calculated u/s 111(4)C.Tax collected above shall not be adjustable.Section 111(4)C. The difference between registered value and value determined under section 68 shall not be considered for the purposes of section 111 (i.e. will not be charged as unexplained income/amount), on which advance tax under section 236W has been paidShall be allowed to be incorporated in books of accounts in tangible form.Aamir Rasheed, ACA, (TAXperts)

Taxation of builders in Pakistan1/2Section 7C. (1) A tax shall be imposed on the profits and gains of a person, deriving income from the business of construction and sale of residential, commercial or other buildings at the rates specified in Division VIIIA of Part I of the First Schedule.(2) The tax imposed under sub-section (1) shall be computed by applying the relevant rate of tax to the area of the residential, commercial or other building being constructed for sale. The Board may prescribe: the mode and manner for payment and collection of tax under this section; the authorities granting approval for computation and payment plan of tax; and responsibilities and powers of the authorities approving, suspending and cancelling no objection certificate to sell and the matters connected and ancillary thereto.(4) This section shall apply to business or projects undertaken for construction and sale of residential, commercial or other buildings initiated and approved after the 1st July, 2016.Aamir Rasheed, ACA, (TAXperts)

Taxation of builders in Pakistan2/2Rates of tax(A) Karachi, Lahore and Islamabad(B) Hyderabad, Sukkur, Multan, Faisalabad, Rawalpindi, Gujranwala, Sahiwal, Peshawar, Mardan, Abbottabad, Quetta(C) Urban Areas not specified in A and BFor commercial buildingsRs. 210/ Sq FtRs. 210/ Sq FtRs. 210/ Sq FtFor residential buildingsArea in Sq. ftRate/ Sq. FtArea in Sq. FtRate/ Sq. FtArea in Sq. FtRate/ Sq. FtUp to750Rs. 20Up to750Rs. 15Up to 750Rs. 10751 to 1500Rs. 40751 to 1500Rs. 35751 to 1500Rs. 251501 & moreRs. 701501 and moreRs. 551501 and moreRs. 35


Taxation of developers in Pakistan1/27D. Tax on developers. (1) Subject to this Ordinance, a tax shall be imposed on the profits and gains of a person deriving income from the business of development and sale of residential, commercial or other plots at the rates specified in Division VIIIB of Part I of the First Schedule.(2)The tax imposed under sub-section (1) shall be computed by applying the relevant rate of tax to the area of the residential, commercial or other plots for sale.(3)The Board may prescribe: the mode and manner for payment and collection of tax under this section; the authorities granting approval for computation and payment plan of tax; andresponsibilities and powers of the authorities approving, suspending and cancelling no objection certificate to sell and the matters connected and ancillary thereto.(4)This section shall apply to projects undertaken for development and sale of residential, commercial or other plots initiated and approved after the 1st July, 2016.Aamir Rasheed, ACA, (TAXperts)

Taxation of developers in Pakistan1/2Rates of tax(A) Karachi, Lahore and Islamabad(B) Hyderabad, Sukkur, Multan, Faisalabad, Rawalpindi, Gujranwala, Sahiwal, Peshawar, Mardan, Abbottabad, Quetta(C) Urban Areas not specified in A and BFor commercial PlotsRs. 210/ Sq YdRs. 210/ Sq YdRs. 210/ Sq YdFor residential PlotsArea in Sq. YdRate/ Sq. YdArea in sq. YdRate/ Sq. YdArea in Sq. YdRate/ Sq. YdUp to 120 Rs. 20 Up to 120 Rs. 15 Up to 120 Rs. 10 121 to 200 Rs. 40 121 to 200 Rs. 35 121 to 200 Rs. 25 201 and more Rs. 70 201 and more Rs. 55 201 and more Rs. 35]


Aamir Rasheed, Chartered AccountantTAXpertsTax | Finance| Corporate | Investment Advisory | Merger AcquisitionsContact: 0300-8422327For further details and questionsAamir Rasheed, ACA, (TAXperts)

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Tax on immovable property in pakistan – an overview of real estate sector taxation