The tax burden in the form of Property Taxes makes Pakistan Real Estate market less attractive for foreigners, as the country’s complex property taxation system may discourage real estate investment compared to its regional counterparts. According to the latest report released by House Building Finance Company (HBFC), the government’s budget for FY25 proposes significant reforms in real estate taxation aimed at boosting revenue, reducing speculation, and improving transparency.
However, a closer examination of the report indicates that these new property taxes could increase the financial burden on investors and diminish Pakistan’s competitiveness in the region. The analysis includes a comparison with seven other countries—India, China, Singapore, Hong Kong, Bangladesh, UAE, and Malaysia—highlighting substantial differences in real estate tax structures.
Unique Capital Value Tax (CVT)
One of the standout features is Pakistan’s 2% capital value tax (CVT) on property, which is unmatched in the region, as major South and Southeast Asian economies do not impose a similar tax. This additional cost on property transactions could hinder Pakistan’s appeal to real estate investors. The report emphasizes that the CVT, in conjunction with other property-related taxes and fees, escalates the overall cost of property dealings in the country. This distinctive property taxes burden may make Pakistan’s real estate market less attractive compared to its neighbors, potentially impacting its regional investment standing.
Capital Gains Tax (CGT) Concerns
The capital gains tax (CGT) on property, set at 15% for filers and 45% for non-filers, presents challenges as well. These rates are significantly higher as compared to Singapore where zero CGT is charged for properties held for over three years and Hong Kong’s exemption for individuals. In contrast, the UAE has no federal CGT for individuals, making it a more attractive option. Malaysia’s recent 10% rate for residents is also lower than Pakistan’s CGT for filers. The report suggests that Pakistan’s CGT structure, particularly for non-filers, may reduce its appeal for property investments.
Competitive Stamp Duty Rates
While Pakistan’s stamp duty on property transactions ranges from 2% to 5% of the property value, it remains competitive within the region. These rates exceed China’s nominal 0.05% for residential properties but are lower than Bangladesh’s 4.5% for larger apartments and 5% for land. The UAE’s rates of 2% to 4% are similar to Pakistan’s. However, the unique CVT adds to the overall burden of property taxes on end users.
Also Read: FBR to Set Property Valuation Rates Near to Market Rates to Boost Tax Revenue
Registration Fees and Market Competitiveness
Pakistan’s registration fee for property transactions, varying from 0.25% to 1% of the property value based on the province, shows mixed competitiveness. This fee structure places Pakistan at a disadvantage compared to China and Singapore, where no registration fees apply.
Also Read: Pakistan’s Real Estate Sector Crisis Unlikely to Recover Before 2030
In conclusion, while the Pakistani government aims to reform real estate taxation to enhance transparency and revenue, however the Property Taxes burden may undermine its attractiveness for foreign investors into Pakistan compared to the neighboring countries.
