Reduction in Property Tax Rates 2015-16

The Government of the Punjab has reduced Property Tax rate to 5% effective from July 1, 2015. However, it should not be assumed to be a decrease in tax liability for the year 2015-16 because the properties will be assessed according to the new valuation rate reflecting their true annual rents.

Continued...

Benefits of Computerization of Property Tax Records

In Pakistan, the provinces keep property tax records manually. This manual recording system has a number of limitations, many of which could be overcome by digitizing the records. The following are some of the benefits expected to result from computerization of property tax records. The computerized record will:

1. Make property tax records more up-to-date in real time sense;
2. Ensure a transparent valuation list containing details of all properties and their assessment;
3. Create easier ways to maintain and to update while conducting surveys of properties;
4. Result in increased revenue collection with a support for identifying defaulters and managing their tax accounts;
5. Ensure integrity of record to avoid loss by tampering with property tax records;
6. Facilitate better management of tax by establishing an efficient and effective management information system.

What is a Kanal?

What is a Kanal?

A Kanal is a unit of land; it is used in Indian Subcontinent for

ONE KANAL

measuring land area. Traditionally, people measure larger piece of land in Kanal. Property developers/ colony developers sell larger houses in 1 Kanal, 2 Kanal, 4 Kanal units.

A Kanal is equal to 20 Marla. There may be variation in measuring ONE Kanal because there are different standards for measuring a Marla. Currently in Pakistan, two different measure are use:

(i) 1 Kanal = 5400 Square feet; and

(ii) 1 Kanal = 5000 Square feet.

If one Marla is 270 square feet, typical dimensions of a one Kanal house is 54X100 Square feet. It means a typical one Kanal house has a length of 100 square feet and width of 54 square feet.

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What is a Marla?

Property Tax Calculator, Punjab, Pakistan?

What are the Property Tax rates in Punjab Pakistan for 2013?

What is a Marla?

What is a Marla?

A Marla is a unit of land; it is used in Indian Subcontinent for measuring land area. Traditionally, people measure land in Marla. Property developers/ colony developers sell small houses in 3.5 Marla, 5 Marla, 7.5 Marla and 10 Marla units.

A Marla is equal to 272 Square feet. However, this is traditional measure used in British India. Currently in Pakistan, two different measure are use:

(i) 1 Marla = 270 Square feet; and

(ii) I Marla = 250 Square feet.

If one Marla is 270 square feet, typical dimensions of a five Marla and ten Marla house are 27X100 and 27X50 Square feet. It means a typical ten Marla house has a length of 100 square feet and width of 27 square feet. Similarly, a five Marla house has a length of 50 feet and width of 27 feet

If one Marla is 250 square feet, typical dimensions of a five Marla and ten Marla house are 25X100 and 25X50 Square feet. It means a typical ten Marla house has a length of 100 feet and width of 25 feet. Similarly, a five Marla house has a length of 50 feet and width of 25 feet.

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Property Tax Punjab Pakistan

Property Tax Calculator

Property Tax Calculator: Punjab, Pakistan

The government of the Punjab, Pakistan has made a Property Tax Calculator available with the Taxpayer online to help them find their tax liability; this calculator has made property tax calculation possible and easier for them. Previously , the tax liability was based on rents of the properties, but it is now based on average rents of localities by using system of categories. Therefore, your tax liability may change with the change in:

1 - Area of the property;
2 - Covered Area of the property;
3 - Use of the Property; and
4 - Category of the locality in which the property is situated.



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Property Tax Calculator

How to use the Property Tax Calculator

Punjab, Pakistan: Property Tax

Pakistan: Property Tax Calculation Formula

In Pakistan, Property Tax is calculated using the following formula:

Property Tax = Value of the Property  X  Rate of Property Tax

Rate of Property Tax is determined by the provincial assembly for collection and assessment of Property Tax.

The Value of a Property is determined by the size of the property and applicable valuation rates. The valuation rates are rates from a notified Schedule or Table of Valuation.

Property Tax calculation in Pakistan is similar across the country with minor changes for calculations in provinces; therefore, you find property tax calculation formula in Punjab similar to the formulas in other provinces.

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Understanding your PT1 form

What are property tax rates in Punjab, Pakistan?

Punjab, Pakistan: Disabled People and Property Tax

Disability places people in a special class: Special People. The federal and provincial governments and NGO's actively work for the welfare of disabled persons. (List of NGO's working for disabled persons) These people have certain right that government gives them due to their inability to live a normal life like a normal person.  One such special right is exemption from payment of Property Tax up to a certain limit.

Disabled People and Property Tax in Pakistan

Exemption from property tax is available with several classes of persons owning properties and several types of properties. One eaxample of such exemptions is exemption for disable persons. Thus, if a disabled person owns a real or immovable property, he, or she will not pay property tax. However, the person will have to pay the tax in excess of Rs. 1,2150. This amount of tax corresponds to annual value of Rs 48,600.

For viewing a full set of exemptions from payment of property tax, click here.

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Property Tax in Pakistan

Property Tax in Pakistan

Property Tax in Pakistan

Property Tax in Pakistan is a local tax on properties. A local tax is a tax that falls in jurisdiction of a local government as against federal and provincial taxes which fall in jurisdiction of the federal and provincial governments respectively. All the four provinces have their legislation on the property tax assessment and collection. The laws are:

1. The Punjab Urban Immovable Property Tax Act 1958;
2. The Sindh Urban Immovable Property Tax Act 1958;
3. The Khyber-Pakhtunkhwa Urban Immovable Property Tax Act 1958; and
4. The Balochistan Urban Immovable Property Tax Act 1958.

These laws are similar in nature and mechanism for assessment and collection of Property Tax. Hence, if you are good at understanding and using tax payment system in a province, you can easily translate your knowldge for use in other provinces.

Property tax is calculated on the value of a property; the value in turn is assessed value of the property, not market value.

Property Tax in Pakistan is a local tax, but it is not assessed and collected by the local government. Four provincial governments collect this tax for local governments. They get collection charges of 15% and give the rest of collection (85%) to their local governments in ratio of tax collected from the geographical areas under the local governments.

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What are the property tax rates in Punjab, Pakistan

What is PT1?

Property Tax assessment procedure in Sindh, Pakistan

How Properties are Assessed

Property tax payable for a given property is based on Annual Rental Value (ARV) of that property. ARV, in turn, is assessed according to the reasonable prevailing rental rates for similar properties within the same locality. For this purpose, each mohalla, colony, town, road, street, etc. belongs to one of seven assessment categories (A, B, C, D, E, F, and G). The Excise & Taxation Department has created tables showing various rates per square yard for land area, and per square foot for covered area (i.e., buildings), for each category.

There is one table for residential valuations and one for commercial valuations. Within each table, different rates are given depending on whether the property is (a) used by the owner or rented and (b) on a main road (one at least 30 feet wide) or off road. The residential table shows different rates for the first 500 square yards of land area and 3,000 square feet of covered area. The land area rates in the commercial table also change above 500 square yards, and the covered area rates are divided into three as ≤1,500 / 1,501 – 3,000 / > 3,000 square feet.

There are special rules for certain types of properties, but to find ARV for general residential and commercial properties, use the following method:

1. Multiply the land area of the property by the applicable rate. 
2. Multiply the covered area of the property by the applicable rate.
3. Add the above, then multiply by 12 to get Gross Annual Rental Value (GARV). 
4. Take GARV less 10% to arrive at ARV.

As a simple example, suppose you own and live in a 1,350 square foot residential house on a 200 square yard lot fronting a main road in a Category A locality:

1. 200 sq yd x 0.40 = 80 
2. 1350 sq ft x 0.40 = 540
3. 80 + 540 = 620 x 12 = 7440 
4. 7440 – 10% = 6696

Thus, your property's ARV is assessed as Rs 6,696.

Property Tax, Sindh, Pakistan

Property Tax in Karachi

Property taxes in Karachi are governed by the Sindh Urban Immovable Property Tax Act, 1958, and associated rules. Section 3 of the Act provides for the collection of taxes based on properties' Annual Rental Value (ARV) according to Section 5. 

Empowered by Section 5A of the Act, the Sindh Government has developed a valuation table which makes it simple to find ARV for a given property. The table separates Sindh's cities, referred to as “rating areas”, into five groups. These groups are themselves divided into four zones depending on local socioeconomic conditions. Different rates are listed for each zone in each group.

The rates are to be applied to the square yardage of a plot of land and the square footage of any buildings (“covered area”) on the land. ARV can be found by multiplying these areas by twelve, adding them together, and subtracting a ten percent allowance for repair and maintenance. Annual property tax is calculated as 25% of this ARV.

Some deductions exist for various specific types of properties, and Section 4 of the Act exempts the following properties from tax altogether:

• Government-owned properties
• Properties with ARV of no more than Rs 864
• Residential buildings on land not over 120 square yards in area
• One residential space of 600 square feet or less on any floor of a building
• Libraries, parks, playgrounds, places of worship, orphanages, cemeteries, cremation grounds, etc.
• Properties owned by widows, orphaned children, and disabled individuals with ARV no more than Rs 48,000
• Properties listed as protected heritage under the Sindh Cultural Heritage (Preservation) Act, 1994 (except those in commercial use)

Taxes and any penalties relating to a property are generally recovered from the property's owner under Section 16 of the Sindh Urban Immovable Property Tax Act, 1958. However, Section 14 of that Act allows recovery from the tenant of a property as well. Unpaid taxes are also recoverable under the Sindh Land Revenue Act, 1967.

Responsibility for property tax assessment, collection and related appeals is vested in officials at several levels. First, an Assessing Authority in each rating area performs most basic assessment and collection tasks. Above the Assessing Authority is a Director, who also carries out some collection functions, and who additionally hears appeals regarding valuation and other issues. (An appeal may be filed within 30 days of receiving an order from the Assessing Authority.) Finally, the Director General of the Excise & Taxation Department is responsible for hearing appeals against the judgment of a Director (known as revision petitions), which must be filed within one year of such judgment. The Director General may also initiate a review of a Director's decision on his own initiative.

How to use the Property Tax Calculator

How to use the Property Tax Calculator

The Punjab Excise & Taxation Department provides a convenient online Property Tax Calculator that lets you find the tax liability for your property quickly and easily. What follows is a step-by-step guide to using the Property Tax Calculator.

Before visiting the site, you'll need to gather some basic information about your property:
1. Total land area in square yards;
2. For any buildings,

• Type (what a building is used for),
• Area in square feet,
• Whether rented or owner-occupied, and
• Year of construction;

3. Residential and/or commercial assessment categories of your locality (although you can find these on the site if you don't know them); and
4. Whether your property is on a main road or off road (roads at least 30 feet wide are considered main roads).

Once you've assembled this information, you're ready to visit the Property Tax Calculator. It seems to work best with Google's Chrome browser.

Suppose you have a property with a total area of 210 square yards, situated on a main road. It has buildings, constructed in 2001, consisting of two rented shops of 120 square feet each, one rented house on the ground floor measuring 1080 square feet, and an 810 square foot owner-occupied residential portion on the first floor. The locality is Category A for both commercial and residential properties.

Go to the Property Tax Calculator and proceed as follows:

1. Find Occupier's Information at the upper left of the screen. This is where you can enter information about the buildings on your property.
2. The first information to be entered is about "portions". A portion is a part of a floor. In our example, the ground floor has two portions: shops and a house. Select "G" for ground floor and then "1".
3. After selecting "shop" for type of building use, entering "120" for covered area in square feet, and choosing "rented" under self or rented, click the add button at the right. You should see the details of the shop displayed below the area where you have entered the information.
4. Follow the same procedure for the other building portions, increasing the number for additional portions on the same floor – you should use "G2" for the second shop and "G3" for the rented house. For the owner-occupied first-floor house, use "F1".
5. When you've entered all the building information, look below for the section entitled Information Required for Calculations of GARV. Enter "210" for total land area of property (total covered area has been calculated for you) and "2001" for year of construction.
6. Since you know that your locality is Category A, you can click the circles next to A. Also click the one for main road. (If you don't know your category, you can click the green text to find it.)
7. Then click the button to calculate your tax, which in this example should come to Rs 24,526. The amount will be displayed in a pop-up window, and you'll be given the option to view the detailed calculations if you wish.

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Property Tax Calculator

Punjab, Pakistan: Property Tax Survey, Part 4

Property Tax Survey in Punjab, Pakistan

The government of the Punjab has carried out Property Tax Survey 2013-14 in the province to increase revenue from property tax. The Excise and Taxation Department, Punjab, started survey work in July 2013 and had completed most of it by December 2013. As part of the survey process, the Department began computerization of property tax records in major cities of the Punjab, including Lahore, Rawalpindi, Faisalabad, and Multan.

The basic purposes of a property tax survey are to:

1. Record changes in the particulars of properties, e.g., new construction, additions and deletions, etc;

2. Record changes in occupancy of properties, for instance, a change from owner-occupied property to rental property;

3. Record changes in use of property, such as a switch from residential use to commercial use; and

4. Record other changes e.g. ownersip.

When these changes are brough on record, they change your Property Tax Bill. Therefore, you may get a revised bill in the months from January to June 2014. The revised property tax liability will be legal and valid despite there is no change in the property tax rates because of the discussion above i.e. difference in previousely recorded and currently recoreded details of a property.


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Punjab Pakistan: Property Tax Survey 2013-14
Punjab Pakistan: Property Tax Survey 2013-14, Part 2

Punjab, Pakistan: Old Rates of Property Tax are Here Again

What are the Property Tax Rates in Punjab, Pakistan?

The government of the Punjab had decreased the property tax rate on the value of urban immovable properties, but had increased the valuation rates of such properties. The net effect of this increase in property valuation alongside a decrease in tax rates was a higher property tax liability for property owners. This change was meant to be tactful, but the end result of increased prospective tax liability was not acceptable to the business community and other stakeholders, and there was a a certain amount of unrest. Ultimately, the government took back the decision to change the rate, and the old rate has been restored today.

Now, the effective rate of tax begins at 20% and the schedule of valuation is the same as it was in 2013. As before, if Gross Annual Rental Value exceeds Rs 20,000, the effective tax on the value is 25%.

The essence of all this is that:

1. The Property Tax Schedule for valuing properties has not been revised;

2. Property tax rates are the same as those in 2013;

3. There is no change in your tax bill if you have already correctly recorded your property in the property tax records; and

4. There will be a change in your property tax bill if you have a property which had previously been under-assessed, or un-assessed.

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What are the property tax rates, Punjab, Pakistan for 2013?

Personal Property and Real Property

Property tax is a tax on property, and property can be of two broad types: personal property and real property. Governments levy taxes on personal and real property differently.

What is Personal Property?

A property is a valuable thing belonging to someone. There are several types of property, and several methods to classify these types. One such method divides the types into two categories: 

1. Personal property; and
2. Real property.

A personal property is a property that is not land, a building, or any other thing permanently attached to land. For example, a Suzuki Cultus belonging to Raheela Rao is her personal property.

What is a Real Property?

A real property or real estate is land, a building, or any other thing permanently attached to land. For example, the house of Moona Mighan is her real property.

Another name for real property is immovable property. In most civil law jurisdictions, real property is called immovable property and personal property is called movable property. It is common sense that anything permanently attached to land, and the land itself, are not movable – they are immovable properties. On the other hand, a car is a personal or movable property because it is not immovable.

Taxation of Personal and Real Property

Governments around the world levy taxes on personal and real properties differently due to their different natures. Real property, or real estate, usually continues to increase in value, but personal property normally decreases in value. The most common reason for this decrease in value is depreciation with use or the passage of time.

An example of a tax on personal property or movable property is Token Tax, and an example of a tax on real property is Property Tax.

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Punjab, Pakistan: Non-Payment of Property Tax – Consequences

What is Default in Tax Payment?

A tax default occurs when tax has not been paid after expiry of the due date. Alternatively, it is the non-payment of property tax that the owner of a property was officially ordered to pay.

The Time and Manner of Property Tax Payment is important to note: property tax is due on or before September 30 of each year. Payment within this period provides a tax rebate of 5% for the owner of a property. On the other hand, non-payment results in tax default, and the owner has to pay the property tax with an extra 1% surcharge and even penalties. The owner is now considered to be in default, and each passing month results in an extra surcharge of 1% for the owner.

Who is a Defaulter?

Property tax is due from the owner of a property, and the owner becomes a defaulter if the tax remains unpaid after the due date.

What are the Consequences of Property Tax Default?

Unpaid property tax in respect of a property will lead to the initiation of recovery proceedings against the owner or the property. The Excise and Taxation Department, among others, takes two actions:

1. Arrest the owner for failure to make payment of the tax due; and

2. Start attachment proceedings for recovery of the tax due by sealing the property.

What should I do if my property has been sealed?

If the Excise and Taxation Officer has sealed your property for recovery of the property tax, you should:

1. Contact the Excise and Taxation Office;

2. Find out the amount of property tax in default. Generally, the in-charge inspector or clerk of your circle can tell you this amount;

3. Get a payment slip in Form PT10 from the in-charge inspector of your circle;

4. Pay the property tax in the State Bank of Pakistan or the National Bank of Pakistan. Generally, the branches which accept tax payments are located near an Excise and Taxation Office. Some Excise and Taxation Offices even have an NBP Cash Receipt Counter inside their premises;

5. Get the property unsealed by showing the payment receipt to the Excise and Taxation Officer.

Property Tax Calculator

Online Property Tax Calculator

The Excise and Taxation Department has launched an Online Property Tax Calculator to help property tax payers. It is a step towards transparency and public access. The calculator is simple to use; all you need from the Department's website is the category of your area. Other information required for the calculation of tax is already available to you, i.e., area of your property in square yards and covered area. You may also need to divide the area according to details of its use: commercial, residential, etc.

A manual explaining the calculator is available at User's Manual for Property Tax Calculator.

To use the Property Tax Calculator click on the link: Online Property Tax Calculator

Facing difficulty in your tax calculation?

Leave comments, we will reomove the difficulty.

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Top Five Reasons for a High Property Tax Bill

Punjab, Pakistan: Have you been shocked by receiving a property tax bill that seems much too high, with a due date that's much too near? You would like to understand the reason behind this excessive bill, but you don't have the time to figure it out, and you're tempted to just pay it to avoid penalties, surcharges, and other penal actions like closing or sealing of your property. The good news is that you can find the top five reasons behind a painfully high tax bill right here:

Reason 1: Tax is not only for one year

The most common reason behind an outsized property tax bill is arrears of property tax. Arrears of property tax are the taxes due on a property for past years, rather than the current year. Taxes for more than one year can obviously make the property tax bill a lot higher than you were expecting. For example, a tax of Rs 3, 240 per year is not high, but it will add up to Rs 32, 400 if not paid for ten years. In addition, penalties and surcharges will also apply on arrears of property tax.

The best strategy in such cases is to pay the tax in installments. However, the Excise and Taxation Department may refuse to accept installment payments of the tax.

An alternative – but not often successful – strategy to cope with the situation is to file an appeal if you feel the Department has not correctly recorded the property.

Reason 2: Tax is of previous owner

A second common cause of an overlarge property tax bill is basically Reason 1 in disguise. The difference is that you are not aware of existence of property tax arrears, because you had the misfortune to buy your property from a seller who did not tell you about property tax dues outstanding against the property at the time of sale. 

If this is your situation, you'll probably want to visit Why should I pay property tax arrears of a previous owner?

Reason 3: Previous owner rented the property, and you did not get it switched to owner-occupied status

The third common reason for a big property tax bill is still another version of the first. It happens when you buy a property from a landlord – someone who was renting the property out. He paid the tax regularly, but you bought the property and moved in, you did not get the property reassessed by the Excise and Taxation Office in a timely manner.

Now that you're aware of the issue, you'll want to get the property recorded as an owner-occupied property in the tax records. You will have to submit an application for it.

Reason 4: Property is owner-occupied, but is recorded as rented property

The above status issue can be a problem even if you didn't just buy your property. If your property is owner-occupied but has been recorded as tenant-occupied property in the tax records, your property tax bill can be ten times higher than it should.

Again, the best strategy here is to get the property recorded as an owner-occupied property in the tax records by submitting an application.

Reason 5: The Excise and Taxation Department has re-assessed the property

The fifth common reason for a higher property tax bill is re-assessment of your property. This often happens when you are paying less property tax on a property which is tenant-occupied. The Department detects this, assesses the property accordingly, and sends you a higher bill.

In such cases you'll normally have no choice but to pay the tax. However, you may prefer an appeal if the property tax bill is too high and unjustified on the face of it.

In addition to the above reasons, you should know how the fundamental calculation of property tax is made. Property tax is calculated by applying a tax rate to the value of a property. If the value of your property is Rs 100 and the tax rate is 20%, you should get a property tax bill of Rs 20. The Punjab government conducts surveys and changes tax rates from time to time to respond to budgetary needs, inflation, and other factors. However, there has been no change in tax rates for about ten years. Property tax rates will remain the same for the year 2014.

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Personal Property in Pakistan: Cars and Token Tax

What is Token Tax?

Token tax is a tax on motor vehicles, including cars. The official name of this tax is the Motor Vehicle Tax, but it is commonly known as token tax. It is a provincial tax levied and collected by the governments of Pakistan's provinces. As cars are a type of motor vehicle, they incur token tax, and it is the duty of a car's owner to pay the tax on time.

Provincial governments collect this tax under their respective laws, which are fairly similar in nature. The applicable law in the Punjab is the Punjab Motor Vehicles Taxation Act, 1958.

The tax base for token tax is engine power in cubic centimeters (cc), and in some cases seating capacity. Thus, this tax is not an ad valorem tax, i.e., it is not levied on the value of a car. The two factors that may affect the tax amount are:

1. Engine capacity of the car; and
2. Seating capacity.

For a private car, engine capacity is the only factor that determines token tax. You can easily find the engine capacity of your car by looking at the appropriate column or row in your car's registration book. The original documents you received when you bought the car will also show this information.

When Should Token Tax Be Paid?

Car owners may pay token tax in three ways:

1. Annual payment;
2. Quarterly payment; and
3. Lifetime payment.

Annual payment of the Motor Vehicle Tax or token tax is to be made before July 31 of each year.

Quarterly payments are made according to the four quarters of a financial year. A financial year starts on July 1 of a calender year and ends on June 30 of the next year. The four quarters of a financial year are:

First Quarter                   July 1 to September 30
Second Quarter               October 1 to December 31
Third Quarter                  January 1 to March 31
Fourth Quarter                April 1 to June 30

The last date for payment of token tax is:

First Quarter                   July 31
Second Quarter              October 31
Third Quarter                 January 31
Fourth Quarter               April 30

Note that quarterly payments are unavailable for private cars. Persons owning a car for their own use can pay token tax annually or by lifetime payment.

What is Lifetime Token Tax Payment?

Lifetime payment is a way to pay the token tax on a car or other motor vehicle for its entire life. You will not need to pay the tax every year after making a single lump-sum payment. This type of payment is not only convenient for taxpayers, but is also a better collection practice for the government. Major benefits of lifetime payment of token tax are that it:

1. Reduces the number of payment transactions; and
2. Frees the car owner from remembering to pay token tax every year in time to avoid penalties.

Examples of Lifetime Token Tax

Nauman is a car dealer in Lahore selling used cars in Pakistan. Arsalan has chosen to buy a used Suzuki Cultus from Nauman. How much lifetime token tax will Arsalan have to pay if nothing has been paid yet?

The lifetime token tax for a Suzuki Cultus is Rs 19,500. This amount is broken down as follows:

Token Tax                     Rs 10,000
Income Tax                   Rs   7,500
Professional Tax             Rs   2,000
                                      ------------
Total                              Rs 19,500

Arsalan will have to pay Rs 19,500 – the actual amount without penalty and without any processing expense to make his application ready for submission at a counter of the Excise and Taxation Department.

Zahid put his Suzuki Cultus up for sale at a showroom in Islamabad famous for selling used cars in Lahore and Islamabad. The dealer told him that he would have to clear the outstanding token tax or the buyer would deduct Rs 18, 960 from the price offered for the car. If Zahid has paid Rs 540 token tax and Rs 750 income tax at a post office in Rawalpindi, what amount should the buyer deduct?

Remember that in the previous example, the total amount of lifetime token tax for a Suzuki Cultus was Rs 19,500. Thus, the dealer should deduct the following amounts:

Total Token Tax Payable                       Rs 10,000

Token Tax Paid                                    Rs      540

                                                               ------------                                         ------------

Balance Payable                                   Rs 9,460

Total Income Tax Payable                     Rs  7,500

Income Tax Paid                                  Rs     750

                                                               ------------                                         ------------

Balance Payable                                   Rs 6,750

Total Professional Tax Payable               Rs 2,000

Professional Tax Paid                            Nil

                                                              -------------                                         ------------

Balance Payable                                   Rs 2,000

Total amount that the dealer should deduct = 9,450 + 6,750 + 2,000 = Rs 18,200

Who Collects Token Tax?

The Excise and Taxation Department collects token tax. However, post offices across the country also collect token tax as collecting agents.

Who Pays Token Tax?

Motor vehicle owners pay token tax on their motor vehicles. 

What Happens if the Owner does not Pay Token Tax?

If the owner of a motor vehicle does pay token tax, the Excise and Taxation Department takes action against the defaulting vehicle. In the event of default, the Department collects tax with penalty and by seizure of the ownership documents and the vehicle itself.

The Excise and Taxation Department is running an active campaign against tax-defaulting cars during February 2014. Following computerization of the motor vehicle records, it has become easier for the Department to identify defaulting cars. The Department has also provided car owners with a way to check the status of their token tax payments. 

How Property Taxes Discourage Real Estate Investment and Business (Part 1)

Financial Benefits of Real Estate

The financial benefits of real estate are of two general types:

1. Rental income; and

2. Gain in capital value of the property.

The government taxes either or both of these benefits arising from real estate / real property. A tax on capital value is different from a tax on rental value. Each of these two taxes affects investment in real estate and the real estate business differently.

Effect of Tax on Capital Value

The government levies taxes on the capital value of real estate in at least two ways:

1. Tax on capital value; and

2. Tax on change in capital value.

Tax on Capital Value Increases Holding Expenses

When the government taxes the capital value of real estate, the tax is payable by the owner of the real estate. It increases the owner's holding cost for the real estate: he has to bear a greater cost to retain ownership in his name. If this higher cost becomes unbearable, the owner can get rid of it by selling the real estate. However, prospective buyers, being aware of the holding cost, may be reluctant to buy the property. Hence, there will fewer transactions in the real estate market – a lowered volume of business.

Tax on Change in Capital Value Discourages Property Transfers

When the government taxes the change in capital value of real property, the tax directly impacts real estate market transactions. This is because a major type of real estate market transaction is when properties change hands, i.e., there is change in title of a property, or a property is bought and sold. On transfer of title, the government charges tax on the difference between the buying and selling price. Practical examples of these taxes are:

1 - Capital gains tax; and
2 - Income tax on capital gains.

For a brief introduction to capital gains tax, visit Capital Gains Tax, and for a short explanation of income tax on capital gains, please see Capital Gains. The government collects these taxes on the change in the capital value of an immovable property when the transaction of sale occurs – the time that the capital gain is realized.

Therefore, a person holding a property will prefer not to sell the property to avoid higher tax if he has other options. Similarly, a person who wants to buy a property will consider whether

1. He is buying the property for resale; or
2. He is buying the property for some other purpose.

If the buyer intends to resell the property, he will not get the title to it transferred to his name. The situation is shown in the following diagram:

In the situation shown, A is a seller of real estate, B is a buyer buying the real estate for resale, and C is a buyer buying the real estate for purposes other than sale.

To avoid transfer taxes, B will:

1. Negotiate an agreement to sell with A. That is, he will obtain A's consent that on payment of an agreed price, A will transfer the property to the name of a person other than B;

2. Make a deal with C for purchase of the real estate;

3. Get a sale deed registered between A and C.

Real estate agents use this technique to make deals between two parties without an actual meeting of the parties before execution of the sale deed. There is no transfer of title in B's name, and instead of paying transfer taxes for two transactions, B has avoided the payment for one transaction.

Continued

Property Tax, Punjab, Pakistan: All the Roles

Roles in Property Tax Collection and Assessment

To get a good grasp of property tax, it's very important to understand the various roles in its collection and assessment. Once you have a clear picture of these roles in your mind, you will be able to understand your rights and responsibilities in relation to your properties. Let's start with some Q&A to outline these roles.

Who Assesses Property Tax?

The Assessing Authority assesses property tax. The role of the Assessing Authority is filled by the Excise and Taxation Officer (ETO). He performs this role under the provisions of the Punjab Urban Immovable Property Tax Act, 1958. It is important to note that this is not the only role which an Excise and Taxation Officer performs; his other roles include Registering Authority for registration of motor vehicles, Assistant Collector, etc.

As the Assessing Authority, the ETO assesses properties for levying property tax. The value determined by the assessment he makes becomes the basis of property tax on the assessed properties. That is, for a given tax rate (e.g. 20%), the value to be taxed is the value determined by the Assessing Authority, i.e., the Excise and Taxation Officer (ETO).

Who Collects Property Tax?

The Assistant Collector collects property tax. The role of Assistant Collector is again filled by the Excise and Taxation Officer under the provisions of the Punjab Urban Immovable Property Tax Act, 1958. While performing his role as an Assistant Collector, the ETO has the power to arrest defaulters, implement orders to seal properties, etc.

Who Pays Property Tax?

The owner of a property pays property tax. In general, this is the sole responsibility of the owner, but there are exceptions. A tenant of a property must pay property tax if he is directed by the Excise and Taxation Officer to do so. However, the tenant has the right to deduct the property tax he pays from the rent payable to the owner. Similarly, there are situations when a possessor of a property or any other party interested in the title of the property may pay property tax.

Who Gets Property Tax?

The local government gets property tax collected by the Excise and Taxation Department. The local government spends this collected tax money on sanitation, street lights, and other local needs.

Who Hears Property Tax Appeals?

The Director of Excise and Taxation hears appeals against assessments made by Excise and Taxation Officers. If a person feels his property has been given an unfairly high assessment, he may file an appeal in the court of the Director of Excise and Taxation. The Director hears the versions of both the ETO and the taxpayer and makes a decision. He may also have his staff inspect the assessed property, or may inspect the property himself.

Who Hears Property Tax Revisions?

The Executive District Officer (EDO) hears Property Tax revisions. (A property tax revision disputes the decision on an appeal made by the Director of Excise and Taxation.)

You may also like to read:

Property Tax, Punjab, Pakistan.

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