FBR increases property valuation rates to match market value
The Federal Board of Revenue increased property valuation rates on Tuesday to bring them in line with market value rates.
The revision of rates will affect the tax on selling or buying property. The property will now be valued at a higher price now, which means the amount of tax paid to the FBR will also increase.
The FBR had been in talks with real estate agents to revise the valuation rates because the government was not receiving enough tax. There are two types of taxes we have to pay on property; federal and provincial, which are further divided into more categories.
Federal tax includes capital gains tax (1% charged on selling property) and advance tax (1% tax charged on buying property, 2% for non-filers).
Provincial tax consists of capital value tax (1% charged on purchasing), registration fee (1% on buying) and stamp duty (0.5% on buying).
These taxes are charged on the minimum property value rate, which has been set by the FBR. The valuation rates differ from area to area, and the type of property you own.
There are 11 categories in Karachi. The A-1 category includes Clifton, Bath Island, Dhoraji Society.
The types of properties include residential open plot, residential built up property, commercial open plot, commercial built up property, industrial open plot, and industrial built up property and flats/apartments.
For example, a resident open plot in category A1 is valued at Rs72,000 per square feet. The previous rate was Rs42,000 per square feet. So if your property is five square yards, the old value of the property was Rs210,000, but with the revised rates, the value would now be Rs360,000. This is the value on which the tax will be charged.
The rates are also applicable to properties with a single floor (ground floor). If you add more floors, you will have to pay tax on 25% of the value rate.
Some people are exempt from paying tax. Earlier, if someone owned a property for three years, they were exempted from paying capital gains tax when they sold their property. The FBR has now changed the condition and exempts capital gain tax only if you owned property for a minimum of eight years.
If someone receives property as a gift from their blood relatives (your parents or siblings), they have to pay a reduced amount of tax. So 1% tax would be charged on 20% of the property valuation rate. If a person who is not your blood relative gifts you a property, then you would have to pay the normal tax rate.
People who have bought their property on installments wouldn’t have to pay the tax initially. Only when the property is transferred on their name will they be required to pay tax. The property will usually be transferred after three years.
The FBR’s new policy also comes after the IMF called Pakistan’s real estate business a system to turn people’s black money into white.
The new valuation rates will complicate property investment. Real estate agents say trade will become slow and the profit margin will also be affected.