The federal government and Federal Board of Revenue (FBR) have been making concerted efforts to regularise and formalise the national economy and Pakistan’s real estate sector over the past few years. As a part of the efforts, the tax regime has been revamped and property valuation tables updated. To bring a greater number of people into the tax net, efforts have been made to penalise non-filers of income tax returns – or conversely, to provide benefits to the filers.
Why file taxes?
At the heart of it, it can be agreed that taxation is vital to the national economy and the only way for Pakistan to avoid foreign loans or bank borrowing. Indeed, according to a news report, in 2014, the then FBR Chairman Tariq Bajwa was quoted as saying that if tax-to-GDP ratio increased by just 13%, there wouldn’t be a need for either of these. Taxation is the backbone of national economy and with the efforts being made to formalise the economy and real estate tax regime, it is going to get extremely beneficial to the tax filers with time.
The most important of these benefits, particularly from the real estate perspective is the lowered taxes on the sale and purchase of property. While provincial taxes – these include Capital Value Tax (CVT) and Stamp Duty – remain the same whether an individual is a filer or a non-filer. Tax percentage levied from filer and non-filers changes significantly for Withholding Tax (WHT).
Withholding Tax (WHT)
Also known as Advance Tax, it is a federal tax payable by both the buyers and sellers on the transfer of property; by the seller only in case they are selling the property within five years of buying it. WHT, in any case, is payable only if the value of property is greater than PKR 4 million. WHT is primarily an advance on taxes of both the buyers and sellers and is adjustable against their other tax liabilities.
WHT liability is decreased by half in the case of tax-filers. For property buyers who are tax filers, WHT is 2% as compared to 4% for the buyers who are non-filers. While in case of sellers, it is 1% as compared to 2% for the non-filers. The following table lays these differences out more clearly:
| WHT by Buyer | WHT by Seller | |
| Filer | 2% | 1% |
| Non-filer | 4% | 2% |
Other benefits
Other tax benefits which tax filers get include no taxes on general or life insurance premiums – which for non-filers are 4% and 1% respectively. Any cash transfer or withdrawal of funds through banks, greater than PKR 50,000, are taxed at 0.6% for non-filers, while this value is half that of the value for filers: 0.3%. Filers are also required to pay lower motor vehicle taxes. They pay only 12.5% of the income and profits from dividends, while the non-filers are required to pay 20% of the profits and the list goes on for a large number and kinds of transactions.
It is clear that a lot of business benefits can be reaped from having a business that pays taxes: above all, your clients and other businesses will know that you are a credible business to deal with and will prefer business with a tax-filing business rather than a non-filing one. Only a taxpayer can get government contracts or participate in government auctions – including foreign governments, companies and firms. Similarly, only a taxpaying business can become a member of any of the Chambers of Commerce and Industry and have access to the benefits they provide.
On a more personal level, a taxpayer can join good clubs, can get visas for other countries more easily and finally, can have the peace of mind that their business is legal and they are fulfilling their obligations to the state and society.
Do you have any questions about the taxes in Pakistan? You can talk to us in the comments section. You can also head to Zameen Forum for an extensive conversation.
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