Karachi, August 3, 2024 – The Federal Board of Revenue (FBR) has broadened the reach of the capital value tax (CVT) to include residential houses and farmhouses starting from the tax year 2024-25.
This move comes as part of the Finance Act, 2024, which aims to enhance revenue collection and bring more properties within the tax net.
According to the FBR, the Finance Act, 2024, has modified Section 8 of the Finance Act, 2022, to levy CVT on farmhouses and residential houses located within the Islamabad Capital Territory. A new proviso to sub-section (1) of section 8 has been added to ensure that the CVT on these properties is levied, charged, collected, and paid based on the area of the farmhouse and residential house, irrespective of their value.
In further detail, the FBR explained that two new clauses, (ab) and (ac), have been inserted into sub-section (2) of section 8, thereby expanding the CVT’s scope to encompass farmhouses and residential houses within Islamabad Capital Territory. These clauses designate these properties as assets subject to the CVT.
Sub-section (4) of section 8 outlines the method of CVT collection and payment. Amendments to clause (g) of sub-section (4) specify that owners of farmhouses and residential houses within the Islamabad Capital Territory must pay the CVT when their income tax return for the tax year is due.
The FBR has also revised the first schedule to Section 8 of the Finance Act, 2022, to stipulate the CVT rates for farmhouses and residential houses. The rates are as follows:
1. Rs 500,000 for farmhouses with an area between 2,000 and 4,000 square yards, and Rs 1,000,000 if the area exceeds 4,000 square yards.
2. Rs 1,000,000 for residential houses with an area between 1,000 and 2,000 square yards, and Rs 1,500,000 if the area exceeds 2,000 square yards.
The FBR believes this expansion of the CVT will enhance tax compliance and revenue generation by bringing more high-value properties into the tax fold. The new CVT measures are part of the government’s broader strategy to increase tax revenues and reduce the budget deficit.
However, this move has garnered mixed reactions from property owners and real estate experts. Some property owners argue that the expanded CVT places an additional financial burden on them, especially those who own large residential properties or farmhouses in Islamabad. They express concerns about the timing of these measures, given the economic challenges faced by many due to inflation and rising living costs.
On the other hand, some real estate analysts view the expanded CVT as a necessary step towards broadening the tax base and ensuring that high-value property owners contribute a fair share to the national exchequer. They argue that the tax revenue generated from these properties can be utilized for public welfare projects and infrastructure development within the Islamabad Capital Territory.
The FBR’s expansion of the CVT to residential houses and farmhouses marks a significant shift in Pakistan’s property tax landscape. As the new regulations take effect, property owners and investors will need to navigate these changes and ensure compliance to avoid penalties. The coming months will reveal the impact of these measures on the real estate market and overall tax revenue.
