Real Estate Investing

3 Types of Property Tax Valuation


Adnan Ul Haq

Module 5:Real Estate Types and Valuation

3 Types of Property Tax Valuation

Adnan Ul Haq

3 Types of Property Tax Valuation

If you want to invest in property, then you need to understand the tax system.  Each country has its own tax valuation system. In Pakistan, there are three types of valuation implemented when the taxes are calculated. 

These three types of tax valuation are explained below. 

  • Actual Value

The actual value of your property is the price you pay for it. For example, if you buy a property at PKR 1 crore, that is its actual value.

  • DC Rate

DC rate is the type of tax valuation that the government or the local authority specifies. The DC rate is employed at the time of calculating your stamp dutty. Each district or area has its own method of calculating the DC rate.

The price of a property overseas may be PKR 10 crore, but it may be worth only PKR 1 crore 50 lac because of the DC rate being implemented in your area. 

The DC rate is also used for stamp purposes. The stamps that you need to avail of, are determined according to your DC rate. If you put fewer stamps than required, you will have to face legal issues. Similarly, if you put more than the required stamps, you might have to face consequences then as well. 

Furthermore, the DC rate is also the rate at which your property is registered in the registry office. 

  • FBR Rate

FBR (Federal Board of Revenue) rate is the withholding tax. It is determined during the purchase of the property and depends upon whether you already are a tax filer or a non-filer. 

A filer is a person who pays taxes and has return files to prove it, while a non-filer doesn’t. The tax valuation rates for these two are different. 

FBR has its own valuation rate and doesn’t detect any amount. So, they set minimum rates and deduct withholding tax when you buy property.

The tax deduction is based on the FBR rate, not the DC rate. So, if you are a filer, they deduct less tax, but they deduct more tax if you are not a filer.

Furthermore, the FBR also inquires about your income source through which you are buying a property or an asset. They also need to know your purchase price, as they compare it with the FBR rate of the property. 

For instance, if you buy a property at PKR 10 crores, however, the FBR rate of the property is only PKR 9 crores, then they will notice a gap of PKR 9 crores. This gap amount can be black money as the declared price of an asset is nowhere near its original price. 

The government also declares an amnesty scheme to help all those who have such discrepancies between the actual price of their assets and the declared price. They can declare their assets again at the correct price without paying too many taxes. 

There are some other ways in which people save their wealth from getting wasted on taxes legally. These are given below. 

Tax Incentive on Holding

The government gives the tax incentive on holding to the people. For example, if your property has been held for two years and the government exempts the capital gains.  

Tax-Deferred on Gain

The tax-deferred on your property is a great way to save money and enjoy the benefits of investing in real estate. 

Principal Residence

European countries have a tax exemption for residential property. This means that you can buy and sell residential properties with tax exemption there. 

Lifetime Capital Gain Limit

Some people buy a house for 1 million dollars, sell it for 1.5 million, and then buy another house. This helps them build wealth, and the government supports this because it is good for the country's economy.

In Canada, the government does not tax lifetime capital gains. However, this is not the case in Pakistan.

Principal Residence RollOver

If you move to another house and it is your principal residence, the government will give you a tax advantage.

It will be in your favor if you understand the tax valuation procedures in Pakistan so that you do not get stuck in legalities or face a loss because of these minor technical details.