What is Property Tax

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Tax Law

Property Tax
Property tax is a levy issued by a government on a person's real or personal property. The property is assessed to give it a value, and then that value is taxed. The amount of property tax owed is determined by multiplying the fair market value of the property by the current tax rate. The amount taxed on a given property may change over time based on a reassessment of the property's value. Typically, property tax is not increased as the value of the home naturally increases; the value of the tax generally remains based on the value of the property at the time it was purchased. Major improvements, however, like building an addition to an existing home, or building a home on a vacant piece of land can trigger reassessment and therefore an increase in the property tax levied. Property tax laws vary by jurisdiction; to be sure of those laws that apply to a particular property, one should consult the appropriate regulatory board or a professional in the field.

Types of Property:
Property is divided into two categories: Real and Personal. The classification is significant because the assessment procedures and the tax rate often vary. Although there are many practical and legal distinctions, real property, in general, is land and anything permanently attached to land (e.g., improvements). Houses, gas stations, motels, shopping centers, farms, apartment buildings, restaurants, offices, and so forth are common examples. Personal property, in general, is any property that is not real property, that is, not attached to the land; it is generally mobile and does not last as long as real property. It includes all items that may be seen, weighed, measured, felt or touched or are perceptible to the senses.

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Tax Law

Examples of personal property include cars, boats, livestock, personal effects and household goods, tools, inventories, computers, portable machinery and equipment, etc. It may also include attachments to mobile homes on rented lots.

Laws for Property Tax:
Property tax in Pakistan is subjected to the following laws:      The transfer of Property Act, 1882 Land Revenue Act, 1967 Stamp Act, 1899 Registration Act 1908 The Punjab Urban Immovable Property Tax Act, 1958

Scope of Property Tax:
Property tax is an annual tax on real property. It is usually, but not always, a local tax. It is most commonly founded on the concept of market value. The tax base may be the land only, the land and buildings, or various permutations of these factors. For the purposes of this guide, property tax is restricted to annual taxes and excludes one-off taxes on transfers, on realized capital gains or betterment, or on annual wealth taxes. Property tax has been in existence for at least three millennia. It is common throughout the world and has often been the subject of political debate. The strengths and weaknesses of this type of tax are well known and possibly more widely understood than any other tax.

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Tax Law Uses of Property tax:
 A source of local revenues: Throughout the world property taxes are commonly employed as the main source of locally generated revenue for the good reason that there is no other major source of taxation revenue that is exactly geographically defined. It is possible to use local income taxes and/or local sales taxes for generating local government revenue but both have difficult administrative problems. Local revenue may be generated from other sources, particularly rents from local government owned properties. In some cases, local income taxes are an important source of revenue. In many cases, however, property tax is the main source of revenue (and even when local income taxes exist, it may be easier for a local government to modify the property tax rate than to adjust the income tax rate). As a primary source of revenue, property tax plays an important role in decentralization and the autonomy of local government. Full decentralization of government incorporates the power to raise revenue independently in addition to powers allowing local governments to use the funds as they see fit (in accordance with the limits of their legal powers). In practice, local government autonomy is always limited. The duties of local governments are almost invariably such that it is impossible to discharge them without central government grants which detract to a greater or lesser extent from their independence. Increasing independent powers of raising revenues through property taxes thus becomes important.  Support for other functions. 'Valuation lists' compiled for local government may be used by other bodies, particularly those that can be termed "single function authorities" such as Water Boards. Water charges are commonly based on the assessed value in the valuation lists. Such procedures are very cost effective and may have a reasonable correlation with water usage in many circumstances (although cases do exist where commercial and industrial properties have low water consumption but have relatively high values). Drainage

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Tax Law
boards can also be funded by charges related to the valuation list, which has advantages over charges related only to the surface area of the property. Property tax is a part of provincial taxes. The provincial govt. is unable to make a considerable participation for the increase of GDP through tax revenues. Provincial govt. only rise about 0.4% of GDP only 4% of the national tax collection. Whereas the province spend about 16% of the taxes what they collect. Property taxes including land revenue, urban property tax and transfer of property make only 28% of the provincial tax composition. Besides the importance of property taxation the Punjab Province is unable to match with the target taxes collection. There are the following reasons that we need to consider in order to make the property taxation to be effective and efficient. The major reasons behind the ineffective collection of taxes are the wrong valuation, tax payer unwilling attitude, low political appetite and the exemptions.

Property Tax Exemptions:
Exemptions on a few properties are common in many taxation systems; Punjab has a number of them offering 10 sets of exemptions in the present UIPT. Exemptions are granted by ownership (for public properties), by use (public parks, playgrounds, libraries, sites of public worship), by value, by size of residential properties, and by specific merits. Although several of these exemptions can be justified and are commonly practiced elsewhere, the list of exemptions is redundant. Some exemptions are questionable from an equity, fairness, and efficiency perspective. Overall, the

generous exemptions have greatly undermined the UIPT integrity, consistency, transparency, and revenue capacity. (a) Buildings and lands other than those leased in perpetuity, owned by the federal government. (b) Building and lands other than those leased in perpetuity owned and administered by the Government of the Punjab or a local government as defined in Section 2 Clause (xvi) if the Punjab Local Government Ordinance, 2001 (XIII of 2001);

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Tax Law
(c) Buildings and land, the annual value of which does not exceed one thousand and eighty rupees, or one building occupied by an owner for his residences, the annual value of which does not exceed one thousand and six hundred and twenty rupees. It is subjected to the condition that the owner or any member of his family does not own any other property in that Rating Area. Provided that if such building or land is in the ownership of a person who owns any other building or land in the same rating area the annual value of such building or land, shall, for the purposes of this clause; be deemed to be the aggregate value of all buildings and lands owned by him in that area. (d) Buildings and lands or portions thereof used exclusively for educational purposes including schools, boarding houses and hostels owned by the government or by a body owned or controlled by the government. Public parks, playgrounds and libraries (f) Buildings and land or portions thereof used exclusively for public worship or public charity including mosques, churches, dharamshalas, gurdwaras, hospitals,

dispensaries, orphanages, alms houses, drinking water fountains, infirmaries for the treatment and care of animals and public burial or burning grounds or other places for the disposal of the dead. Provided that the following buildings and lands or portions thereof; shall not be deemed to be used exclusively for public worship or for public charity within the meaning of this Section, namely: Buildings or lands on which any trade or business is carried out unless the rent derived from such buildings or lands is applied exclusively to religious purposes or such public charitable institutions as may be prescribed. Buildings or lands in respect of which rent is derived and such rent is not applied exclusively to religious purposes or to public charitable institutions. (g) Buildings and lands annual value of which does not exceed rupees forty eight thousand and six hundred belonging to a widow, disabled person or a minor orphan. Provided that where the annual value is more than rupees forty eight thousand and six hundred the tax shall be levied on the amount in excess of the said amount. (h) One residential house measuring an area up to one kanal (500 sq yds.) owned and occupied for his residence by a retired government servant of the federation or a
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Tax Law
province. Provided that in this clause government servant shall not include a servant of a body corporate owned, established or controlled by the Federal or Provincial Government. (i) One self-occupied residential house having an area not exceeding 5 Marlas (125 sq yds.) in Katchi Abadi notified under the law relating to Katchi Abadis. (k) One residential house, measuring an area up to 5 Marlas (125 sq yds), used for residential purpose, irrespective of its annual value.

Property Tax Rates:
The most recent round of data collection for the project was completed in December 2009.
Tax or mandatory contribution Corporate income tax Social security contributions Pension contributions Total tax Tax base rate (% profit) taxable profit 14.3

Payments (number)

Notes on Payments

Time

Statutory tax

Notes on TTR

(hours) rate

5

40

35.0%

12

40

6.0%

gross salaries

6.8

12

5.0% PKR 100 per month 18%

gross salaries

5.5

Education cess 1

per worker annual rental value of

2.7

Property tax

1

(including

0.9

10% discount) property Fuel tax 1 25.0% fixed fee (PKR 10,000) withheld 10.0% interest value of fuel consumption 0.8

Professional tax 1

0.4 included in other

Tax on interest

0

0.3

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Tax Law
Tax or mandatory contribution Payments (number) Notes on Payments Time Statutory tax Total tax Tax base rate (% profit) Notes on TTR taxes Vehicle tax 1 fixed fee slab rate Stamp duty 1 based on contract value VAT/GST 12 480 15.0% value added not included 0.2

(hours) rate

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Tax Law Professional Tax
Professional tax is charged by respective Municipal Corporations. It is paid according to employee salary. This tax is paid by every employee working in Private organizations. The tax is deducted by the Employer every month and remitted to the Municipal Corporation and it is mandatory like income tax. You get income tax exemption for this contribution. Whereas the employee means a person employed on salary and includes the followings: 1) A Government servant receiving pay from the revenue of the Central

Government or any State Government. 2) A person in the service of a body whether incorporated or not, which is

owned or controlled by the Central Government or any State Government, where, such body operates within the municipal limit even though its headquarters may be outside the municipal limit

Law for Professional Tax:
Professional Tax is implemented under the Finance Act 194-1977 and Sindh Finance Act, 1964. A tax levied and collected in respect of earning or income from any profession, trade, callings or employments for each financial year in addition to any tax, rate, duty or fee that may be payable under any other law.

Scope of Professional Tax:
Professional tax is levied under the Sindh Finance Act, 1964, as per which, all those employers , who start any Trade, Business, professions etc. then it must intimate the same with in 30 days of commencing the same to District Excise And Taxation Office in the form of PCT - 6.

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Tax Law
The basis of Professional tax is to bring various categories of persons engaged in different trade, callings and professions.

Category 1: Rs.150/- per salaried person whose salary is taxable under Income Tax Law.

Category 2: All limited companies, modarbas, mutual funds and any other corporate body registered under Company Law.

Category 3: Importers and Exporters licence holder/owners of industry/factory and commercial establishments, contractor, suppliers, wholesaler, stockest, medical practitioner, Architect, Accountant, Car Dealer, Real Estate Agencies etc; (which should be on partnership or proprietorship).

Category 4: Rs.500/- per annum on the establishments which are not Income Tax assesses.

Category 5: Rs.2500/= per annum on all petrol pumps/CNG filing stations Different provinces act on the rules as applicable in that province, the aforementioned rules are applicable to the Province of sindh, and however the basis of professional tax is the same regardless of provinces.

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Tax Law Professional Tax Rate:
Tax amount should be pay in State Bank of Pakistan (SBP)/National Bank of Pakistan (NBP), F-8 Markaz, Islamabad in Account No: B01601. The rate of the professional tax of 2009 is mentioned below: S no. 1 2 3 Private Companies Proprietorship/individual Importer/exporter 5,000-10,000 3,000-5,000 3,000-7,000 Categories Fee Amount (Rs.)/annum

Professional Tax Rates 2004 (Last Amended)
Audit firm Out of boundary firms Consultants, engineer, technical and scientific consultants Lawyers’ Members Stock Exchange Money exchanger Motor cycle dealer Motor car dealer and Real Estate Employee Agencies Goods Transporters Health club and gymnasium 3000 2000 2000 1000 5000 3000 5000 5000 10000 2000 2000
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Tax Law
Jeweler, electronic stores, departmental stores Contractor, builder and property dealer Government professional employees 1000 500-10000 200

Registered MBBS doctors, dental surgeons, homeopathic doctors and Hakeem 1000 Importers exporters 2000-5000

References:
1. http://islamabadexcise.gov.pk/Taxation/Prof_tax.html 2. http://www.accountancy.com.pk/forum/topic.asp?TOPIC_ID=7579 3. http://siteresources.worldbank.org/PAKISTANEXTN/Resources/Publications-andReports/367132-1234146800572/punjabpakistan.pdf 4. http://law.freeadvice.com/tax_law/property_tax_law/property_tax_types.htm 5. http://law.freeadvice.com/tax_law/property_tax_law/property_tax_types.htm 6. http://www.forumfed.org/libdocs/2010/2010-10-30-Pakistan-LUMS.pdf

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