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FBR empowered to carry out property price evaluation

Pakistan government on Monday implemented new rates of taxes, through a presidential ordinance with immediate effect, which will apply to new valuation tables for the purpose of taxation of property in major cities.

The ordinance empowers the Fed­eral Board of Revenue (FBR) to determine the fair market value of properties of areas across the country. Ear­lier, this was a job for State Bank of Pakistan.

Similarly, it was also clarified that for areas where no valuation tables have yet been notified, the district officer revenue or provincial or any other authority authorized in this behalf for the purpose of stamp duty will apply for the collection of taxes.

The new valuation tables will only be used for the purpose of calculating Capital Gains Tax (CGT), withholding taxes and for the purposes of Section 111 of the Income Tax Ordinance 2001.

It was clarified under the ordinance that if the fair market value determined is different than the auction price, the applicable price will be the higher of the two. The holding period of property was also reduced to three years from five years.

To further facilitate real estate investors, the government has introduced three slabs, effective from July 1, 2016, on properties.

According to the ordinance, the rate of CGT will be 10 per cent on a property held for one year, 7.5pc on a property held between one and two years, and 5pc if the holding period is between two and three years. If a property is held for more than three years, it will be exempt from CGT.

There will also be no tax on property held irrespective of the holding period.

On the issue of transactions made before July 1, 2016, the CGT rate will be 5pc on a property held up to three years. No tax will be charged on property held for more than three years.

To avail this special rate, the person will have to declare the property at its actual cost on a one-time basis if the holding period is less than three years. The tax will be paid on the amount of the difference between the declared cost and actual cost.

According to the ordinance, the CGT rate will be reduced by 50pc on first sale of property acquired or allotted to serving or ex-servicemen of the armed forces as well as the federal and provincial governments being original allottees of the property duly certified by the allotment authority as compared to other citizens if they sold plots given to them in lieu of service benefits within three years.

The government has increased the basic threshold for application of withholding tax on purchase of immovable property from Rs3 million to Rs4m.

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