Advance Withholding Tax On Property in Pakistan
Advance Withholding Tax On Property is a federal tax and normally termed in property market as advance tax for the buyer and FBR tax for the seller. In the new budget for the financial year 2016-17, Government has changed the advance withholding tax on property. Buyer and seller have to deposit the witholding tax before the transfer of the property. Before the budget of 2016-17 , it was levied at the rate of 1% for a tax filer and 2 5 for a non-filer when buying property. 0.5% for a tax filer and 1 % for a non-tax filer when selling the property. Properties below the DC rate of 3 Million were exempted form it. However in the budget 2016-17 there have been four changes in terms of withholding tax as under.
- 2% for a tax filer and 4 % for a non-tax filer when buying a property.
- It will be levied at 1% for a tax filer and 2% for a non-tax filer when selling the property.
- FBR value will be used instead of DC rates.
- It will be only levied on properties whose FBR value is more than 4 million.
It is not really CGT (Capital Gains Tax) but the advance withholding Tax On Property which is giving nightmares to investors. In this article we will only discuss the impact of advance witholding tax on property and how to avoid paying witholding tax. But before we go there we must understand that withholding tax is an advance tax collected on your tax liability. It is not a direct tax on your property and there are many ways you can avoid it.
Impact of witholding tax on property in Pakistan
The Governments plan is incredibly smart to improve its tax net and the revenues look good for the Government. The federal Government has increased its collection of Advance Withholding Tax On Property in two ways:
- By increasing the tax percentages to 2% and 4% for tax filer and non-filer respectively.
- Imposing increased FBR values instead of DC values for collection of withholding tax.
Besides everything we have to consider that it is actually only 2% . The 4% rate is only for non-tax filers and therefore will not effect every real estate transaction. The taxes collected by the Government always add up to the over all price of the property. While the market may seem to slow down at this very moment , it will pick up pace and property prices will rise. Some of the effects of the Advance Withholding Tax On Property are as under:
- Investors will jump into small plots with less than 4 Million FBR value , thus saving them Advance Withholding Tax On Property.
- Lots of options are available in the market which are not effected such as 5 and 10 Marla plots in Ph , 6 , 7 , 8 and 9 in DHA Lahore.
- Biana and short term trading will mostly shift to smaller plots to reduce transfer expenses.
As in general it will not slow down the real estate business . People will only get educated and will learn to avoid it altogether . To learn how to do that continue reading our article.
Avoid Advance Withholding Tax On Property
Withholding tax is an advance tax collected from your total tax liability in advance if you purchase property. It is not a direct tax on the property you purchase. If you are a tax filer, your Advance Tax is adjusted against your total tax liability. You can get Witholding tax adjusted in your annual tax returns if your money is declared white. It is time that you consult your lawyer and start working on your annual tax returns.
You have no liability to pay taxes in Pakistan if you are a nonresident Pakistani. However you must register yourself as a tax-filer in Pakistan. You will have to deposit Advance Withholding Tax On Property but you can ask for a refund. Non-residents who have business or properties on rent in Pakistan can adjust there Advance Withholding Tax On Property like Tax filers.
However if you are a non-filer than paying Advance Withholding Tax On Property should not really effect you. You have already not paid any taxes on the money you have earned. Also if you are a non-filer you can simple invest in plots , houses etc with less than 4 Million FBR Value. This will save you paying the 4 % Advance Withholding Tax On Property. However if you want to make bigger investments you can either start paying your tax liability or take a bitter route of paying 4% tax.
🙂 Oh yes we did it again , the myth is busted about Advance Withholding Tax On Property. We all now know it is not that scary as it looked. In reality the only tax you pay directly for your property is 3% CVT and 2% Stamp duty on DC rates . Yes we live in a new Pakistan now and you need to educate yourself about taxes instead of being scared of the unkown. Start filing your taxes now if you want to avoid Advance Withholding Tax On Property or pay it and be thankful as it is not even the fraction of tax you are supposed to pay.
CEO & Investment Consultant at Imlaak
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