New tax measures create uncertainty in property market


The real estate market in Pakistan has been experiencing a drop in volume for the past three weeks. Investors are jittery due to new taxation proposals by the federal government. Currently the value of any property for the purpose of taxation, commercial or residential, is quoted as its deputy collector (DC) rate. All types of taxes are applied on the DC value of the property. The DC value is a yardstick used to ensure correct collection of taxes. It is revised each year after market research and varies between different phases of different developers.

The market value of any given property is, however, determined on the basis of demand and supply. There is a lot of variation in the value of even adjacently located properties as they are completely dependent on market forces.

The DC value makes up only a small percentage of the actual market value. For example in DHA Phase 8, Lahore, the DC value is just 16.8% of the market value for a 1 canal plot.

Historically all the taxes collected at the time of buying or selling a property have been applied on the DC value of the property. The recent call to make amendments in section 68 of the Income Tax Ordinance 2001 through the Finance Act 2016 aims to address this disparity in the value of property and tax collection.

The proposal aims to start collecting taxes on the full market value of a property rather than the DC value. This automatically increases the tax collection of the authorities. The real estate market in Pakistan is currently valued at over Rs 7 trillion.

The table below shows the existing and proposed amendments to the taxes:

Sr. No. Description Existing on DC Rates Proposed on Market Value
a. Sellers Tax  
  Advance Tax  @ 0.5% for Filer        @ 1% non Filer  @ 1% Filer                                       @ 2% Non Filer
  Gain Tax 10% upto 2 years of Purcahse 10 % upto 5 Years of Purchase
b. Purchasers Tax  
  Advance Tax  @ 1% for Filer          @ 2% non Filer  @ 2% Filer                                       @ 4 % Non Filer
  CVT  @ 2%  @2%
  Stamp duty  @ 3%  @ 3%


The proposal has doubled the rates of taxation and more importantly, the tax is to be applied on the market value. As the market value is much higher than the DC value, tax collection from real estate will go up by approximately 400% to 4400%.

The amendment suggests that the taxable amount will be assessed by the evaluators appointed by the State Bank of Pakistan (SBP) or the Federal Board of Revenue (FBR). The first concern being voiced is that the approved valuators of the SBP will be from the approved private firms.

Market experts are saying that the valuators will be tempted to give the best valuation (lowest) to the buyer or seller of the house so that they generate more business than their competitors. The buyer or seller will want that the valuator gives the lowest possible valuation so that the tax liability is the least possible on the buyer or seller. This in turn will also encourage corruption as valuators will want compensation for under-valuation.

Another issue that is being raised, especially by real estate agents, is that the capital flight has already started. Due to uncertainty in the market, there is a fall in volume from both the buyers and sellers. Only the properties purchased in the past 30 days are being settled. No new transactions are taking place as the amendment issue persists. Foreign investors who prefer the real estate market in Pakistan to invest their savings have also stopped remitting their savings to Pakistan. Capital flight has already begun as investors route their savings to other countries in the Middle East and Dubai.

Currently, the DHA offices are also confused about how much tax they should collect on a certain amount. FBR officials at the DHA offices also remain unsure about the tax deductions that are to be made. DHA Lahore feels that the new taxation laws will also increase paperwork and red tapism which in turn is also a deterrent for new investors who prefer an easy and streamlined procedure to buy property which the DHA currently offers.

Provincial offices of the FBR have also raises concerns that the tax collection, which was already being done under the previous taxation rules and rates, has decreased substantially due to lack of activity in the market.

There are also rumours about retrospective tax collection which means that owners of properties may be liable to pay increased taxes under the new tax rates if they have owned a property for up to 10 years. It also means that a buyer who purchased land in the last 10 years and still holds that piece of land will have to pay new taxes even if they paid taxes at the time of the purchase.

Real estate developers like DHA and Bahria Town as well as big real estate agents are in talks with the government to work out a suitable solution that is mutually beneficial. Otherwise, they feel that this industry may meet the same fate as other industries in Pakistan that are either dead or not doing too well. Developers and agents are suggesting a few options instead that include a gradual increase in taxation, a fixed tax, an amnesty scheme and finally taxing 50% of the market value.


  1. No doubt, capital will fly to other Countries in Dubai, London or In African Countries. The Real State is Deliberately damaged.
    Like Taxtile. Export Etc. The big Icone don't Want that Small Investers Can Earn A minimum Level.
    Thousand of Persons Are Associated with this
    The Tax Should be As minimum As Possible. It will be Good for Govt. People And Country. It Will Also Seriously Affect on In Coming Remittances.

    • If a common man cannot purchase this property, this is not investment but trading business. We cannot let a few thousand greedy people destroy the millions of common men who want to build homes. With your greed you have played gambling for few years and made it your business. Property agents and property traders are bad for Pakistan…. they want to make money with money and destroy middle class.

  2. Can any one please tell me the reason of increasing tax on real estate.
    I heared that our authority want to invest in Dubai real estate ,that’s why it increases tax in our country…is it true??

    • simple the govt dnt want investment in pakistan for their own benefits ishaq dar wants big gaints should invest in dubai….

  3. Nice post and I want to appreciate you for sharing, I have been listening many issues related to property taxes, well can you please suggest me any real estate or any property dealer who can easily help me out ? Do let me know soon, Thanks

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