KARACHI: Pakistan’s multi-layered property taxation may reduce its attractiveness for real estate investment compared to some neighbouring countries despite having specific individual tax category advantages.

The latest report, Pakistan’s Real Estate Taxes & Trends, issued by the House Building Finance Company (HBFC), has noted that the Pakistan government’s FY25 budget introduces significant reforms to real estate taxation aimed at increasing revenue, curbing speculation, and enhancing transparency.

However, upon analysis of the detailed report, it is evident that the new property taxes have increased the burden and diminished Pakistan’s competitiveness within the region.

A comparative analysis with seven other countries — India, China, Singapore, Hong Kong, Bangladesh, UAE, and Malaysia — has been carried out to understand Pakistan’s new tax structure in a global context, said the report, adding that this comparison reveals significant variations in real estate tax structures across these markets.

2pc capital value tax on property is unique in region

Capital value tax

The report said Pakistan’s capital value tax (CVT) of two per cent on property value is unique in the region, as other major South and Southeast Asian economies do not impose a similar tax.

“This additional cost on property transactions could put Pakistan at a competitive disadvantage in attracting real estate investment,” said the report.

According to the report, the CVT, combined with other property-related taxes and fees, increases the overall expense of property dealings in Pakistan.

“This distinctive tax burden may make Pakistan’s real estate market less attractive compared to neighbouring countries, potentially impacting its position in the regional property investment market,” said the report.

Capital gains tax

The capital gains tax (CGT) on property, set at 15pc for filers and 45pc for non-filers, presents a mixed picture compared to other countries in the region. This rate is higher than Singapore’s zero per cent for properties held for at least three years and Hong Kong’s non-applicable status for individuals. It’s also more complex than China’s flat 20pc rate.

The UAE’s lack of federal CGT for individuals makes it more attractive in this aspect. Malaysia’s recent introduction of a 10pc rate for residents is lower than Pakistan’s rate for filers.

“Pakistan’s CGT structure, particularly for non-filers, could be seen as less competitive compared to some regional counterparts, potentially impacting its attractiveness for property investment,” said the report.

Stamp duty

Pakistan’s stamp duty on property transactions, ranging from 2 to 5pc of property value or circle rate (whichever is higher), is generally competitive within the region. It’s significantly higher than China’s 0.05pc for residential properties but lower than Bangladesh’s 4.5pc for larger apartments and 5pc for land. The UAE’s rates of 2 to 4pc are similar to Pakistan’s.

“Stamp duty rates in Pakistan, ranging from 2 to 5pc, are comparable to other countries, but the addition of a unique CVT at 2pc of property value sets Pakistan apart and potentially increases the overall tax burden on property transactions,” said the report.

Registration fee

Pakistan’s registration fee for property transactions, ranging from 0.25 to 1pc of property value depending on the province, presents a mixed picture compared to other countries in the region. “This fee structure puts Pakistan at a disadvantage compared to China and Singapore, where no registration fees are applicable,” said the report.

Published in Dawn, August 25th, 2024