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Understanding Property Tax and Property Tax Rates in Pakistan

Written on . Posted in News.

For every one of us who owns property in Pakistan, the time of the year when property taxes are due is always accompanied by some measure of apprehension. Taxes are often difficult to make head or tail of, and it is more than understandable if you are a little freaked out. But rest assured, www.parasestate.com is here to help!

Property taxes are levied on both commercial and residential buildings and land by the provincial governments of Pakistan. The Excise & Taxation (E&T) Departments of the provincial governments release Valuation Tables every year, which provide certain figures based on different measures for each province, and sometimes for different cities within a province. These tables use more or less the same formulae in every province to calculate something called annual value (more on this later) but in different ways, and later on we’ll provide you with links to explore each province’s formulae in detail.

Take a look at the Residential Property Valuation Table released by the E&T Department of the Punjab government for 2014 below for example:

RESIDENTIAL
CATEGORYRENTEDSELF-OCCUPIED
RATE OF LAND SQ. YD. (IN PKR)RATE OF COVERED AREA IN SQ. FT. (IN PKR)RATE OF LAND SQ. YD. (IN PKR)RATE OF COVERED AREA IN SQ. FT. (IN PKR)
Up to 500Exceeding 500Up to 3,000Exceeding 3,000Up to 500Exceeding 500Up to 3,000Exceeding 3,000
A2318.42318.44.63.684.63.68
B1713.61713.63.42.723.42.72
C1411.21411.22.82.242.82.24
D118.8118.82.21.762.21.76
E8.26.568.26.561.641.311.641.31
F6.55.26.55.21.31.041.31.04
G43.243.20.80.640.80.64

At first look, this table seems difficult to understand and plenty confusing. Property taxes seem really complicated because there appears to be a lot of calculation and legal jargon involved. They are not nearly as complex in reality, though. So take a deep breath and let us walk you through this table step by step.

DETERMINING THE TAX AMOUNT

Property tax is levied on the annual value of land and buildings. In Punjab, for example, the tax is levied at the rate of 5% of the annual value. Simply put, the annual value of a property is the estimated amount the property would fetch if rented out for a year (12 calendar months). Calculating the annual value is the only tricky bit in all of this. Once we have this value, calculating the tax is a breeze.

Other provinces use different rates. The Sindh government, for example, taxes properties at the rate of 25% of annual value. This seems huge when compared to the rates in Punjab, but the prescribed figures to calculate annual values issued by the Sindh E&T Department are correspondingly lower, so the final tax amount comes roughly within the same bracket.

The numbers provided to calculate the annual value of a property vary from category to category and from size to size, as well as depending on whether it has been rented out or is occupied by the owner in the case of Punjab.

Annual value is calculated in four steps:

  1. i)     (Total Land Area of a Property) x (Per Yard2Rent Prescribed in Valuation Table) = A
  2. ii)    (Total Covered Area of a Property) x (Per Foot2Rent Prescribed in Valuation Table) = B

iii)  (A + B) x 12 = Gross Annual Rental Value (GARV)

  1. iv)  GARV – 10% of GARV = Annual Rental Value (or annual value)

Residential

The Valuation Table above gives us all the necessary information to calculate the tax, so using it, let’s calculate the property tax for a single-storey 1-kanal (500 yard2) home in a Category A area in Lahore rented out to a tenant, just as an example.

One kanal or 500 yard2 is equal to 4,500 ft2. Let’s say the covered area in this home is 3,350 ft2. So according to the table, land of this size in Category A would fetch PKR 23 per square yard in rent every month, and the house built on it would fetch PKR 18.40 per square foot in rent per month.

We know the land area for this house is 500 yard2 and the covered area is 3,350 ft2. Going by the steps above, the calculation would be:

  1. i)                    500 x 23 = 11,500
  2. ii)                   3,350 x 18.40 = 61,640

iii)                 (11,500 + 61,640) x 12 = 877,680

  1. iv)                 877,680 – 87,768 = 789,912

There you have it. PKR 789,912 is the annual value for the house we chose as an example. Since the Punjab government taxes property at 5% of annual value, the tax due would be:

0.05 x 789,912 = PKR 39,496

This number might vary slightly if the E&T Department in question taxes covered area and open land using separate metrics. Nevertheless, the ballpark figure you will get with this calculation should be fairly close to the real tax sum.

Commercial

When it comes to commercial property, the Punjab government’s valuation tables now also distinguish between ‘Main’ and ‘Off’ properties within a category. This refers to the location of the commercial property, whether it lies on a main road or off a main road. A main road is defined as a road with the width of 30 feet or more.

Please take a look at the Commercial Property Valuation Table for 2014 issued by the E&T Department of the Punjab government:

COMMERCIAL
CATEGORYRENTEDSELF-OCCUPIED
RATE OF LAND SQ. YD. (IN PKR)RATE OF COVERED AREA IN SQ. FT. (IN PKR)RATE OF LAND SQ. YD. (IN PKR)RATE OF COVERED AREA IN SQ. FT. (IN PKR)
Up to 500Exceeding 500Up to 3,000Exceeding 3,000Up to 500Exceeding 500Up to 3,000Exceeding 3,000
AMain12096120962419.22419.2
Off9676.89676.819.215.3619.215.36
BMain806480641612.81612.8
Off6451.26451.212.810.2412.810.24
CMain5644.85644.811.28.9611.28.96
Off44.835.844.835.88.967.178.967.17
DMain4032403286.486.4
Off3225.63225.66.45.126.45.12
EMain3024302464.864.8
Off2419.22419.24.83.844.83.84
FMain2016201643.243.2
Off1612.81612.83.22.563.22.56
GMain1512151232.432.4
Off129.6129.62.41.922.41.92

Now before you get freaked out by the seemingly increased complexity of this table, let me tell you that everything is practically the same as the residential table, the only difference being the ‘Main’ and ‘Off’ provisions. Let’s do another hypothetical calculation so we can get a better idea of the rates at which commercial properties are taxed. The formula is the same as before.

Let’s say for example that you have a 100 yard2 (900 ft2) shop in an off-main-road commercial area that falls within Category B, which you are occupying yourself. Using the table above, you can calculate the annual value as follows:

  1. i)     100 x 12.8 = 1,280
  2. ii)    900 x 12.8 = 11,520

iii)  (1,280 + 11,520) x 12 = 153,600

  1. iv)  153,600 – 15,360 = 138,240

According to this calculation, the annual value for such a shop will be PKR 138,240. The property tax due would therefore be:

0.05 x 138,240 = PKR 6,912

 

VALUATION TABLES AND OTHER DETAILS

Valuation Tables and/or tax details for the provinces can be accessed through the links below:

Excise & Taxation Department, Government of Punjab

Excise, Taxation & Narcotics Department, Government of Sindh

Excise Department, Government of Khyber Pakhtunkhwa

Excise & Taxation Department, Government of Balochistan

 

REBATES & EXEMPTIONS

Rebates are incentives that the provincial governments provide to taxpayers at their discretion. For instance, the Punjab government gives a rebate equalling 5% of the tax amount for paying the tax in time (before September 30th) and in lump sum. This ensures timely and efficient tax collection.

All provinces declare specific properties exempt from paying property tax. These exemptions vary from province to province, and details can be found in the links we’ve provided above. As an example, the Punjab government does not tax properties whose annual value is less than PKR 4,320, or buildings owned by widows, minor orphans and/or disabled persons if they meet certain criteria.

I hope this detailed explanation of property taxes will help you keep calm when you receive your next tax challan. If you have any questions – which I’m sure you do given the large amount of arithmetic in this post – please don’t hesitate to ask in the comments section below.

 

Disclaimer: The valuation rates used as examples in this post were taken from the Punjab Excise & Taxation Department’s website. While we tried our best to ensure the figures are up to date, we cannot guarantee their accuracy. The examples are intended to be only a guide for readers, so please contact the relevant authorities for up-to-date tax figures in your province.  

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