Rising property taxes caused the real estate sector to stall in the first quarter of 2015, according to new analysis from Lamudi Pakistan.
During Q1 2015, an increase was levied in the transfer fee, stamp duty, capital value tax (CVT), and withholding tax. Similarly a new corporation fee has also been added.
These policies hamper the activity of Pakistan’s real estate sector, with real estate agents now looking for other business opportunities as the sector has come to a standstill in the past quarter.
For instance, if a homeowner wants to transfer their property, they have to pay a variety of taxes. The transfer charges vary from each housing society to the next, however there are some fixed transfer charges that have to be paid to the government.
The government says that the transfer charges are five percent of the DC rate, which is the minimum land value. The breakup of the transfer charges includes the following: three percent tax on stamp papers, one percent is the newly-added corporation fee and two percent is the capital value tax.
A one percent advance withholding tax has also been levied since July 2014 on the purchase of both commercial and residential immovable properties having a DC rate, of more than PKR 3,000,000.
If the seller is a taxpayer then he has to pay 0.5 percent of the DC rate, and if he is not a taxpayer then he has to pay one percent of the DC rate. The buyer has to pay two percent of the DC rate. In the end these taxes adds up to around nine percent of the DC rate.
Saad Arshed, Country Director of Lamudi Pakistan, said: “The government needs to curb these taxes to give a boost to the real estate sector of Pakistan.
Currently, agents are very demoralized by the excessively high costs they incur on each property transaction, which was one of the key reasons for stalled real estate market activity in 2015. The government should revise these taxes in the upcoming 2015-16 budget to give a boost to this multi-million dollar sector of Pakistan.”
For instance, if somebody is buying a 10 Marla plot, the transfer fee prior to the tax increase was around PKR 175,000. The fee now amounts to PKR 275,000, which can discourage investors.