How Do Property Tax Rates Work in Pakistan?

Understanding property tax rates in Pakistan does not seem like a job for the faint of heart. We’ve all come to accept that convoluted calculations and mind-boggling stipulations are part and parcel of this process, but the truth is that with a little bit of fortitude, this seemingly formidable task can be accomplished with relative ease. So let’s go through the whole process step by step and understand a few key facts to make all of our lives a little easier.

In Pakistan, the provincial governments are in charge of levying and collecting property taxes. The metrics and calculations might vary from province to province, but the provincial excise and taxation departments publish all the necessary information every year to enable a quick and easy calculation. I may be playing fast and loose with the words ‘quick’ and ‘easy’, but let’s find out.

As per property experts, taxes are levied on commercial, residential buildings and land at prescribed rates. In this article, I am using figures and rates from Punjab for the sake of homogeneity.

The Punjab Excise & Taxation (E&T) Department releases a Valuation Table every year, which is a scary-looking thing with lots of columns and rows filled with numbers. No beating around the bush: at first glance, it does look like Newton himself wouldn’t be able to make head or tail of this thing. However, once the inevitable wave of panic – and if you are completely devoid of mathematical aptitude like yours truly, confused nausea – passes, a more nuanced look reveals this table to be an innocent and helpful collection of numbers.

This valuation table and a simple formula is all you need to calculate something called ‘annual value’, which is the estimated annual rent of a given property. The Punjab government taxes immovable property at the rate of 5% of annual value. Let us now get to the calculation.

CALCULATING THE TAX

Below is a Residential Property Valuation Table published by the Punjab E&T Department for 2014:

See. I warned you it was scary-looking. But don’t worry, once you have done a sample calculation, you’ll get the hang of this. In this table, you’ll notice a column labelled ‘Category’. This refers to a system employed by the province of Punjab in which areas within a city are divided into categories based on certain criteria. To find out which category your property is located in, it is best to contact the E&T Department directly.

The tax amount varies based on category, size and covered area, and occupancy status (whether you are renting the property to someone or occupying it yourself). The formula to calculate the annual value is as follows:

i)      (Total Land Area of a Property) x (Per Yard² Rent Prescribed in Valuation Table) = A

ii)    (Total Covered Area of a Property) x (Per Foot² Rent Prescribed in Valuation Table) = B

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

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

Residential Calculation

I know that formula likely knocked the wind out of you, but let’s do a hypothetical calculation and see if it is as terrible as it seems. Let’s suppose you have a single-storey 500-yard² (equal to 1 kanal or 4,500 ft²) home in Lahore, and it is located in a Category A area. Let’s also suppose it has a covered area of 3,350 ft² and you are renting it out to a tenant.

All you have to do is locate the right numbers in the valuation table above and plug them into the formula. According to the table, the monthly rent for a 500-yard² piece of land in a Category A area would be Rs 23 per square yard. Similarly, the house built on this piece of land would be rented out for Rs 18.40 per square foot per month.

So with a land area of 500 yard² and a covered area of 3,350 ft², the complete formula and calculation would be as follows:

i)                    500 x 23 = 11,500

ii)                   3,350 x 18.40 = 61,640

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

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

So Rs 789,912 would be the annual value for this imaginary house of ours. The final tax amount would be 5% of this annual value, which is another simple calculation:

0.05 x 789,912 = PKR 39,496

That’s all there is to it, really. Rs 39,496 is roughly the tax amount you will pay for this home. If the E&T Department taxes open land and covered area differently, this amount might go up or down slightly, but it’ll be in the neighbourhood of the figure we arrived at with the calculation above.

Keep in mind that commercial properties are taxed a little differently with additional provisions, but by God this is enough arithmetic for one article. Maybe we can address the commercial property tax calculation in another one later.

For now, head out into the world with your head held high because you just performed a complex mathematical calculation. Can you feel your mathematically frustrated 15-year-old self smiling proudly at you from somewhere in the past?