Imran Associates

Imran Associates

Cost & Management Accountants 

Corporate Lawyer (since 2002)

Imran Associates

Cost & Management Accountants 

Corporate Lawyer (since 2002)

Pakistan Real Estate Business Taxation Increased in 2024

Pakistan’s real estate industry has seen considerable tax revisions in the 2024-25 budget. These changes primarily affect property sales, acquisitions, and the corresponding holding periods. Understanding these changes is critical for individuals involved in real estate transactions to navigate the new tax environment properly.

This article will review significant real estate tax changes, such as introducing new words and updated tax rates.

Real Estate Business Tax Rates for Filers and Non-Filers 

One of the most critical components of the new tax system is the distinction between filers and non-filers. Filers filed their tax returns on time, while non-filers did not. The tax rates for these two groups are significantly different.

  • Filer tax rate: 3%.
  • Non-Filer Tax Rate: 6%.

This year, a new category called “Late Filer” was created. Late filers submit their tax returns after the deadline yet pay the late payment premium. Under the new taxation system, these people are handled differently.

  • Late Filer Tax Rate: 6%.
  • Non-Filer’s Tax Rate: Up to 10%

The tax rates for property transactions are determined by the value of the property being purchased or sold. The following overview:

  • Up to 5 crore: 3%.
  • Up to 10 crores: 4%.
  • Above ten crores: 5%.

As the value of the property rises, so does the tax rate, especially for non-filers, who may see rates rise by up to 20%. This tiered strategy tries to increase taxpayer compliance with filing requirements.

Real Estate Withholding Tax

Withholding Tax and Capital Gains Tax

It is essential not to confuse withholding tax with capital gains tax. Under Sections 236C and 236K of the Income Tax Ordinance, withholding tax is deducted at the time of property transactions. The registration authority involved in the transaction withholds this tax.

Capital gains tax, on the other hand, applies to the profit made from the sale of a property. The distinction between these two types of taxes is crucial for understanding tax obligations.

Capital Gains Tax Structure:

Capital gains tax is calculated based on the difference between the purchase and sale price of the property. The holding period significantly influences the tax rate applicable to the gain:

  • Holding Period of 1 Year: Higher tax rate
  • Holding Period of 2 Years: Moderate tax rate
  • Holding Period of 6 Years or more: Tax-free

However, significant changes are coming into effect for properties purchased after July 1, 2024. For properties acquired after this date, the capital gains tax will be a flat rate of 15%, regardless of the holding period.

Implications of the New Capital Gains Tax Rate:

If you buy a property after July 1, 2024, and sell it any time later, the gain will be taxed at 15%. Exemptions from the previous holding period will no longer apply.

The existing capital gains tax rules will continue to apply for properties bought before this cut-off date. This includes the previous holding period exemptions where properties held for six years or more are tax-free.

Tax Changes for Property Transactions

The updated taxation framework for the real estate business in Pakistan introduces several critical changes for the 2024-25 fiscal year:

  • Introduction of Late Filer category with specific tax rates.
  • Tiered tax rates based on property value for filers and non-filers.
  • There is a clear distinction between withholding tax and capital gains tax.
  • New flat capital gains tax rate of 15% for properties bought after July 1, 2024.

Conclusion

The reforms to real estate taxes in Pakistan for 2024-25 mark a substantial shift in how property transactions will be taxed. Understanding these shifts is critical for everyone involved in the real estate market, including buyers, sellers, and developers.

As the landscape of property taxes changes, remaining knowledgeable can assist in maintaining compliance and improving financial consequences. With new categories and altered rates, taxpayers should contact tax specialists to manage the changes successfully.

Staying connected with credible sources is vital for getting more information and updates about taxes and real estate in Pakistan. Working with real estate business tax experts may give clarity and direction targeted to particular needs.

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