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Property taxes after real estate amnesty scheme

Property taxes after real estate amnesty scheme

Government has approved tax amnesty scheme for real estate sector. Non-filers have to pay additional 3% tax to become filer or in other word to whiten the black money.

Changes in property taxes 2016-2017

WHT, CGT, ST & CVT will be charged according to the rates set in budget 2016. There is no change in these taxes. There is additional 3% tax for the buyers who are non-filer or who cannot show the source of income.

In some instances, FBR Property Rates are higher than the market value, government will reevaluate these rates. New rates of these areas will be lower than the market value.

Taxes to be paid by filers or taxpayer

For filer there are no additional charges. Filer has to pay the taxes according to budget 2016-2017.

Taxes to be paid by non-filer or non-taxpayer

For properties bought before 1 July 2016 and registered according to DC Rates, buyer has to pay taxes according to DC Rates. If people cannot explain the source of income, they have to pay 3% taxes according to DC Rates to be filer. For example, property was registered at 10 LAC as per DC Rates. Now FBR value of this property is 25 LAC. FBR will only ask the source of income of 10 LAC which was the registry value. If someone has no source of income, then that person has to pay 3% taxes according to DC Rates.

For new transactions since 1 July 2016, FBR will not ask the source of income up to the amount of FBR Rates. If property transaction is more than FBR Rates, FBR will ask the source of income. In this case person has to pay 3% tax on the difference between FBR Rates and actual value. For example, property value by FBR is 30 LAC and property market value is also 30 LAC, then FBR will not ask the source of income. But if FBR Rate is 30 LAC and property transaction value is 50 LAC, FBR will ask the source of income. In this case person has to pay 3% tax on difference between FBR Rate and actual value that or on 20 LAC.

For all new transactions since 1 July 2016, FBR will charge 3% extra withholding tax from non-filer buyers to become filers or to whiten the black money. WHT for non-filers is 4% according to budget 2016-17, so non-filer has to pay total of 7% as withholding tax to whiten the black money or to become filer.

Market sentiments

Real estate stake holders have welcomed this amnesty scheme. According to real estate stake holders, this amnesty scheme will uplift the stagnant reality sector. This will not only help the real estate sector but also to the all associated industries like construction.

Biggest challenge

In 70 years history of Pakistan many amnesty schemes have been approved. Unfortunately all amnesty schemes failed and proved to be useless exercises. Amnesty schemes were offered to bring undocumented economy to tax net. But even after so many amnesty schemes only 1% Pakistanis are filers. Government once again has approved amnesty scheme for real estate to bring black money to tax net. Let’s see how successful this scheme will be to attract the investors to real estate sector who are disheartened by high taxes and are tax dodgers.

Recommended:
Taxes to be paid on property transactions according to budget 2016-17

(31) Comments

  1. Asma Ali

    on   said 

    AOA
    My father is planning to buy a plot in DHA Phase 1 Islamabad, he is non-tax filer but pays his taxes (retired armed forces).
    Market value of plot is 11 million, so how much tax he will have to pay?

    Now we also have an option to buy a plot in Bahria Phase 8, overseas sector 3 or lakeview. The plots we have selected price range is 6 million (sector 3) and 7 million (lake view), how much tax will be over there?

    and r these current prices by FBR for land in DHA and Bahria?
    http://download1.fbr.gov.pk/SROs/2016821785719291Rawalpindi.pdf

    He can show the source of income but he is non-tax filler
    can u guide me how to become a tax filer n how much time it will take for that?
    Should we purchase after registering as tax-filer because property prices r uncertain and can rise n plots we have narrowed down to might increase in that time and overall taxes will end up same or higher in that time.

    And between these two areas, which is better for long term settlement, Sector F DHA-1 Islamabad is well populated and closer to all amenities but Bahria phase 8 OS-3 sector is mostly vacant or new construction is under progress. Might get better in a years time and difference between both areas is just 4-5 minutes drive.

    Reply
  2. Ali Asghar

    on   said 

    I thank you for your well thought articles. Do you think now is the right time to invest? Is 70lac reasonable price for 10 marla in DHA lahore Phase 7? I dont want to miss any chance of purchasing a land before it goes out of my reach.

    Reply
    • Ali Asghar
      DHA Phase 7 is long term investment 3-4
      Kidney & Liver Hospital under construction
      Pakistan’s First Knowledge City in Dera Chahal near DHA Phase 7 Lahore.
      GOVERNMENT IS WIDENING BEDIAN ROAD FROM NAWAZ SHERIF INTERCHANGE TILL BRB CANAL

      DHA Phase 7 is very hot investment and under estimated by people

      Buy plot there in range 60-70
      Prefer corner
      You will get profits in long run In shaa ALLAH

      Reply
      • Muhammad Anwar

        on   said 

        Dear ghar 47, in bahira town phase 8, which sector is better for house construction keeping in view the ring road construction
        and what are ur comments on this, is it better to construct the house there in long run as comparae to the other housing private hosing sociteis of rwp / isb

        Reply
        • Muhammad Anwar
          Bahria Town Phase 8 is the best phase.
          Yes it is good to build house long / short term
          Bahria town offers beautiful planning and enormous facilities.

          Bahria Town 8 has already two important road links, G.T. Road and Islamabad Expressway

          Reply
          • m anwar

            on   said 

            thanks for ur nice reply.
            one more thing jinah garden isb or naval or bahria town phase 8, which scheme is better in long run,

            price will fall more in these societies or not

            me waiting ur reply

  3. CURRENT SITUATION OF REALITY MARKET / CONSTRUCTION SECTOR

    Month of December is best to introduce new projects in Pakistan as many expatriates visit home land. This year is worst in Pakistan history. Just 1-2 new real estate projects have been launched in first week. Last year in first 5 days 13 new projects were launched.

    AMNESTY SCHEME HAS MIX RESPONSE

    REAL ESTATE AGENTS
    Have welcomed it as market friendly.

    CONSTRUCTION SECTOR
    Construction industry has mix response. According to some it will bring boom in construction industry. For other it will have low effect on construction activities.

    A GOOD READ ABOUT PAST AMNESTY SCHEMES AND VIEWS OF REALTORS / CONSTRUCTION EXPERTS

    CAP terms amnesty for realtors anti-industry

    http://nation.com.pk/business/05-Dec-2016/cap-terms-amnesty-for-realtors-anti-industry

    Reply
  4. mazhar

    on   said 

    did any one noticed any change in the prices in the market over the last few days after the amnesty bill approval from the NA.

    Reply
    • Mazhar
      At the moment market is dead
      No rise or no fall
      Coming weeks or months will show the real direction
      People / investors / builders are confused
      Confusion will end soon IN SHAA ALLAH

      Reply
  5. YOUSUF LODHI

    on   said 

    HAMID IS A NON-FILER
    HE HAS BLACK MONEY
    AS ON 05-12-2016, HE WANTS TO BUY A PLOT
    VALUE OF THE PLOT IS 1-CRORE AS PER CURRENT FBR TABLE

    Q. SINCE HAMID HAS NEVER BEEN A FILER, HOW MUCH TOTAL TAX HE WILL HAVE TO PAY TO BECOME FILE ?????

    Reply
    • YOUSUF LODHI
      HAMID AS NON FILER
      PROPERTY WORTH 1 CRORE BY FBR

      FOR REGISTRY OF PROPERTY HAMID HAS TO PAY 10% TAXES – (6% NORMALLY IF PROPERTY IS LESS THAN 4 MILLION – 4% WHT FOR NON FILER IF PROPERTY WORTH MORE THAN 4 MILLION)
      PLUS 3% TAX TO BE FILER OR WHITEN THE BLACK MONEY

      SO HAMID HAS TO PAY 13% TAXES FOR REGISTRY OF PROPERTY ACCORDING TO FBR RATES
      HAMID’S PROPERTY WILL BE REGISTERED AFTER HE HAD PAID 13 LAC AS TAXES

      Reply
        • yousuf lodhi
          YOU BUILD HOUSES?
          CAN YOU BUILD HOUSE IN THIS TIME TO SELL IT?
          AS PROFITS ARE LOW AND UNCERTAINTY IS HIGH

          THIS IS WHY LAST YEAR WE SAW 23 NEW PROJECTS IN DECEMBER 2015 KARACHI

          13 IN FIRST WEEK OF DECEMBER 2016=5

          JUST 1 NEW PROJECT IN KARACHI DECEMBER 2016

          Reply
          • Hello,

            I have a question.

            If the current value of plot is 10 times i.e 10 cror compared to what FBR has valued i.e, 1 cror. The filer has to pay 10 cror the banking transaction will be of 10 Cror. Still the tax will have to be paid 13% of FBR value.. I mean they will not check by banking transaction that actually the person has whitened his 10 cror by paying tax only on 1 cror.
            Please clarify, i am confused.

            Best Regards
            Ali

          • ALI
            They will check 10 Crore, but will deduct tax for 1 crore that is FBR Rates.
            You must show all money to them, FBR is asking the real transaction
            If you only show 1 Crore then 9 Crore will be black money.
            FBR will see 10 crore and will just record that you have 10 crore legal money as you have paid taxes.

          • Thanks for your clarification.

            Now comes the following question. If the same plot is is to be sale after 12 months for 12 crores. How much taxes needs to be paid ?
            Purchase price : 10 Cror @ FBR value 1 Cror. taxes paid at the time of purchase 13% of FBR value

            Best Regards
            Affan Ali

          • ALI
            Your WHT will be 1% if you are filer and 2% if you are non-filer

            CGT – CAPITAL GAIN TAX
            7.5% if you sell it after 1 year of purchase but before 2 years like within 2 years of purchase
            Selling price AS FBR RATE – Buying price AS FBR RATES = PROFIT
            7.5% CGT on profit

            For example FBR RATE IS NOW 1 CRORE
            FBR rate after 1 year when you sell plot is 1.25 Crore
            Your profit is 25 Lac
            7.5% tax on 25 Lac = Rs. 187,500/-

    • KT Murad

      on   said 

      Yousuf Lodhi

      For non-filer to become filer, in case of DHA, Islamabad it is 4% withholding tax (increased from last year rate of 2%), 2% capital value tax and now this new 3% amnesty tax. All in all it is 9% (4+2+3) as far as I know. Someone may correct me, if wrong.

      However, paying this 900,000/- in form of taxes will give someone a complete peace of mind in future, free from all worries. And I always keep saying in the long run these taxes wont matter and one gets good gains on better location property. Further, if he retains it for a longer period his capital gain taxes (tax on sales) shall be reduced even to nil at some stage.

      Respectable members should study independently and make their own view about DHA Islamabad especially phase 2 and recently renamed phase 5 for its future prospects due to under construction ‘signal free corridor’ from Islamabad to Rawat and available discounts in value comparing other areas of CDA Islamabad or for that matter DHA of other metropolitan cities like Lahore and Karachi!

      Reply
      • KT Murad

        TAXES TO BE PAID BY NON-FILER BUYER

        Corporation tax / Town Tax or Registry Fee = 1%

        Stamp Duty = 3%

        Capital Value Tax = 2%

        Withholding Tax = 4%

        Total tax to be paid by buyer who is filer = 10%

        + 3% TAX DUE TO AMNESTY SCHEME

        TOTAL IS NOW 13%

        PRICE TRENDS

        DHA ISLAMABAD HAS BETTER PROFIT MARGINS AS COMPARED TO DHA LAHORE AND DHA KARACHI AS DHA ISLAMABAD IS LESS EXPENSIVE

        PRICE FALL SINCE 1 JULY 2016

        DHA KARACHI = 35%
        DHA LAHORE = 25%
        DHA ISLAMABAD = 20%

        I MENTIONED LAST TIME THAT PRICES WILL FALL MORE WHERE PROPERTIES ARE EXPENSIVE. ABOVE PRICE FALL SHOWS IT. DHA ISLAMABAD HAS MUCH MORE PROFIT MARGIN THAN DHA LAHORE AND ISLAMABAD.

        QUESTIONS IS?
        IF SOMEONE BUYS PLOT IN DHA KARACHI AND BUILDS A HOUSE SAY 250 SQ YARDS. WHAT S/HE CAN EXPECT TO GET PROFIT?

        NEW DEVELOPMENT TRENDS IN ISLAMABAD ARE ON TWO SIDE MOSTLY
        1- ON ISLAMABAD EXPRESSWAY
        2- NEAR NEW AIRPORT

        BOTH ARE WIN WIN FOR INVESTORS IN LONG RUN LIKE 3-5 YEARS

        Reply
  6. Overseas

    on   said 

    Real state stakeholders, standing committee members did not highlighted and addressed about the overseas Pakistani who sent their hardworked earned remitances, over the decades to buy their home, by different available channels according to their convenience.
    For example:
    1.western union,
    2. By hand time to time themselves or alongwith relatives/friends.
    3. To their FCA accounts in Pakistan.

    It will be apprecited if someone highlights , in the context of amensty,if this money is black or white.

    One who earned overseas monthly in FC and sent to FC account in Pak keeping FC is permitted by the Govt.
    Changing FC with licenced money changer is also legal

    Is it Black money?
    If yes, than why these channels are available and permitted by the Govt?
    Is it true that money is black if it is collected by illegal means ?
    Where to raise these questions?

    Reply
    • KT Murad

      on   said 

      Overseas

      I think sending money through legal channel and buying property is absolutely legal and can be termed as ‘white’. It is only the matter of withholding tax which was raised to 4% from 2% in July 2016 budget but this seems to be refundable at later stage. I hope the following link may answer your question to some extent

      https://www.google.com.pk/amp/tribune.com.pk/story/1170000/withholding-tax-overseas-pakistanis/%3Famp%3D1?client=safari

      Other membes can explain it further!

      Reply
      • Overseas

        on   said 

        Thanks to KT and Ghar 47 for their response and providing the link above, however I will be glad if its furthr discused as this matter is a concern of million of overseas Pakistani who also think that once our account were ceased and as a result they suuered huge losses despite the FC was sent to home country on tge request of our King. In return they received Pak Rps and later they changed thier rps back to FC on a very higher rates to take thr capital back again.
        This time more or less is same. If they term the FC remittance black or do not address the issues including higher whithholding tax , than many thousands will including myself will be codidering to not to send the remittance , instead will be looking other options of investments overseas.

        Who is responsible if the pressure builds up of shortfall of remittance ?

        Reply
        • KT Murad

          on   said 

          Overseas

          You have a genuine concern and therefore, in my humble opinion, you may consider doing the following:

          1. Try to build up pressure (through some of the overseas Pakistani Forum,) for reduction of withholding tax of 4%, as overseas case is altogether different from ‘domestic non-filers’.

          3. You also need to find out the procedure of refund of this tax as its mentioned in the above referred link. If tax amount is significant there is no harm in hiring a tax lawyer for few thousand rupees and you will find many 🙂

          3. More importantly and keeping in view what you mentioned happened in past, always keep your remittances to Pakistan converting to some assets (my priority had always been property during my overseas years, though one can also invest in stocks, if having good knowledge of the market). In fact this strategy has immensely benefited me. Again due care of the area, location, society is a pre-requisite.

          4. The beauty of this strategy is complete exemption of tax for long term holding

          All I mean to say, these taxes don’t matter in the long run (and they may be refundable) but one should consider keeping savings in form of some assets rather than keeping cash either in FCY or PKR.

          I hope the above is to some benefit to you.

          Reply
          • KT Murad
            GREAT POINT: NEVER EVER HAVE YOUR SAVINGS IN CASH / NOTES

            Banks have many clauses and can deduct funds when ever they want
            It is called as BANK HOLIDAY DEDUCTION

            When banks are near to solvency, owners close banks for few days or weeks. It happened in Greece. When banks opened after many days, 20% amount was less in accounts. Banks explained that they have deducted money as emergency tax to keep the bank solvent.
            Cash in long run lose value due to inflation.
            IN PAKISTAN BEST INVESTMENT OPTIONS ARE STOCK AND PROPERTY
            BUT
            Best hedge against inflation is property in long run like 4-5 years.

    • Overseas

      1- BLACK MONEY

      DEFINITION BY GENERAL PUBLIC
      Money earned through illegal means is black money
      DEFINITION BY GOVERNMENT
      Money that is not in tax net, un-documented or un-taxed is called as black money

      2-ONE OF MAJOR REASONS TO OFFER AMNESTY SCHEME WAS TO BRING FOREIGN REMITTANCE TO REAL ESTATE SECTOR

      Pakistan received low remittance during last quarter. Government has pressure that people are transferring capital to other countries. This is why amnesty scheme was offered. Foreign Pakistanis are also Pakistanis. If they cannot show source of income they have to pay 3% extra tax like other Pakistanis.

      Reply
  7. KT Murad

    on   said 

    A nice informative article!
    It was appearing in newspapers that ‘standing committee’ recommendations included a suggestion that higher of ‘3 – 6% of FBR valuation or 1% of actual market price should be charged’ as total taxes including withholding tax, advance tax and CGT etc’. But it appears from your article that it has been turned down with only amnesty of 3% additional taxes, given to non-filers, in addition to existing taxes.

    Reply
    • KT Murad

      There are many rumors about amnesty scheme and how taxes will be collected. Actually there were many proposals about amnesty scheme. As you have mentioned, higher of 3-6% tax and 1% tax on actual market value were also discussed.
      But yes, now government has approved property tax amnesty with just 3% additional taxes. Government has not lowered the taxes imposed during budget 2016-17. Buyer/seller has to pay same CGT, CVT, ST & WHT etc. Buyers who are non-filer have to pay additional 3% taxes.

      FBR has hinted about upcoming trends that will have great impact on real estate sector / property prices. According to FBR, all additional taxes will be part of next budget 2017-18. There are also news that duration of property tax amnesty scheme will be discussed in next budget. This hint will have negative impact on real estate sector as watch and see situation will remain and investors will be reluctant.
      Prime goal of FBR is to end all disputes in real estate sector. According to government / FBR property taxes should be recorded according to market value or real transaction value.

      15 October to 15 January is always busy time for real estate agents as many foreign Pakistanis visit homeland and invest in property sector. Developers always introduced new projects during this time. Last year more than 50 new commercial and residential projects were launched during that time. But this year developers have introduced just 5-7 new projects. Many new developments are unsold. Many developers have sustained huge losses as they have to lower prices up to 35%.

      Prices since 1 July 2016

      DHA Lahore = 25% down
      DHA Islamabad = 25% down
      DHA Karachi = 35% down
      DHA City Karachi = 50% down
      BAHRIA TOWN DEVELOPMENTS = Selling on loss

      At the moment even genuine buyers are reluctant to buy properties. Hope that this amnesty scheme helps out the prices to to bottomed out and sale and purchase volume rise again.

      Reply

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