Property taxes are an important source of revenue for governments all over the world, and Pakistan is no exception.
In Pakistan, the amount of property tax you pay is determined based on the fair market value of your property. But what exactly is fair market value, and how is it determined? In this article, we’ll take a closer look at this concept and how it applies to property tax in Pakistan.
According to the Income Tax Ordinance, 2001 (updated as of June 30, 2022), released by the Federal Board of Revenue (FBR) fair market value is defined as the price that a property or rent, asset, service, benefit, or perquisite would ordinarily fetch on sale or supply in the open market at a particular time. This means that fair market value is essentially the price that someone would be willing to pay for your property if it were put up for sale in the open market.
When determining fair market value, it’s important to consider all relevant factors that could affect the price of the property. These factors could include the location of the property, its size and condition, any improvements or renovations that have been made, and the state of the local real estate market.
If the price of a property or asset cannot be easily ascertained, the Commissioner may determine the fair market value. Additionally, the Board may periodically determine the fair market value of immovable property in specified areas through notification in the official Gazette. This means that if there is any uncertainty or disagreement about the fair market value of a property, there are procedures in place to ensure that a fair assessment can be made.
It’s important to note that the fair market value determined under sub-section (4) or (5) is only for the purposes of the Income Tax Ordinance, 2001. Furthermore, if the fair market value determined under sub-section (4) or (5) differs from the auction price, the applicable price will be the higher of the two.
Once fair market value has been determined, it is used to calculate several tax-related calculations, including the formula in sub-section (2) of section 37, consideration received in Division X of Part IV of First Schedule, value of immovable property in Divisions XVIII of Part IV of the First Schedule, and valuation for the purposes of section 111. In other words, fair market value plays a crucial role in determining the amount of property tax that you will be required to pay.
It’s worth noting that property taxes can vary widely depending on the location and value of the property in question. In some cases, property tax rates may be higher in urban areas than in rural areas. Additionally, the amount of property tax you pay may increase if the value of your property increases over time.
In conclusion, understanding fair market value is essential when determining property tax in Pakistan. It’s important to consider all the factors and regulations laid out in the Income Tax Ordinance, 2001 to arrive at a fair and accurate assessment. By understanding this concept, property owners can ensure that they are paying the correct amount of property tax and avoiding any unnecessary penalties or legal issues.
(The writer is Syed Faisal Shahnawaz and is studying at Upper Cambridge St. Patrick’s High School, Karachi.)
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