The 3% federal excise duty (FED) that is applied to the first sale of all properties in Pakistan after July would be eliminated immediately, according to the government’s decision. This overturns a controversial tax law that, within ten months of its implementation, has seriously harmed the real estate industry.
Government sources said that a top Federal Board of Revenue (FBR) official told The Express Tribune on Tuesday that the decision was made after consulting with the International Monetary Fund (IMF). In addition, on May 14, an IMF budget special mission will arrive in Pakistan to review the budget for fiscal year 2025–2026.
According to the sources, it has been decided to eliminate the 3% FED on property transfers or allocations by filers and the 5% FED on non-filers. They also mentioned that the FBR has already filed a summary to start the legal procedure of doing away with the duty.
According to FBR spokeswoman Dr. Najeeb Memon, the prime minister’s task team on the housing industry has suggested doing away with the 3% FED, and its ruling is expected to be put into effect eventually. Legislation is anticipated to be introduced shortly, he noted.
Because most real estate authorities are reluctant to take the duty, which is under the province’s purview, there has been very little collection during the July–March period of current fiscal year. Taxpayers have contested the obligation in court, arguing that immovable property is a provincial matter under the Constitution.
Muhammad Aurangzeb, the finance minister, has already agreed to change the summary to eliminate the duty. The Federal Excise Duty Act amendment will now be presented to the federal cabinet. With the necessary parliamentary permissions, the government hopes to eliminate the duty this month.
A question about whether the IMF supported doing away with the 3% FED was not answered by Mahir Binici, the IMF’s resident representative.
Effectively, the duty was applied to all homes, plots, and apartments sold in Pakistan after June 30, 2024. The levy was first proposed when the National Assembly approved the budget. Rates of 3% for filers, 5% for late filers, and 7% for non-filers were collected at the time of booking, allocation, or transfer, and they applied to commercial properties as well as the first sale of residential plots or properties.
In the Islamabad Capital Territory, the government levied a Rs500,000 tax on farmhouses between 2,000 and 4,000 square yards and a Rs1 million tax on farmhouses larger than 4,000 square yards as part of extra measures unveiled the night before the budget was approved.
Similarly, residential properties between 1,000 and 2,000 square yards were subject to a Rs1 million tax, while those larger than 2,000 square yards are now subject to a Rs1.5 million tax. Additionally, a 4% stamp duty on the value of properties being exchanged in the Capital Territory of Islamabad was allowed.
To make matters worse, shortly before the budget was approved, the government also levied a 10% income tax levy on anyone making Rs 10 million a year.
According to sources, a plan to eliminate this surcharge beginning in July is being considered. They stated that by decreasing tax rates and raising the taxable income level, the government is examining a number of ways to lessen the tax burden on the salaried class. But next month, the IMF will have to approve these suggestions.
In order to review the budget and tax measures for the upcoming fiscal year before they are submitted to the National Assembly, which is expected to happen on June 4 or 5, just before the Eid vacations, the IMF’s budget mission is expected to arrive in Pakistan on May 14. History.
Last Saturday, the finance minister announced that the IMF mission on the budget would arrive in the middle of May.
According to real estate dealer Ahsan Malik, who was also a member of the PM’s Task Force on Housing, the removal of the duty will benefit the real estate industry because, unlike withholding taxes, it is not adjustable.
High real estate prices and high transaction taxes are causing the real estate industry to have slow development prospects. The IMF has supported significantly raising withholding tax rates in the budget and inhibits speculative trading in the real estate industry.
The government earned Rs108 billion in withholding taxes on property sales and acquisitions during the first half of this fiscal year, which is Rs17 billion, or 18%, more than the same period last year, despite the generally weak market.
The PM’s task committee also suggested doing away with the presumed income tax on real estate, which it characterized as faulty law and a subject that belonged to the province. Additionally, it recommended that stamp tax rates be standardized and rationalized throughout Islamabad and the provinces.
Other suggestions include maintaining unified taxation policy through the National Tax Council and doing away with Islamabad’s capital value tax.
The task force has also proposed revising property valuations every three years to reflect market prices and introducing transaction tax exemptions for specific categories, such as low-cost housing, government plots, and first-time homebuyers.
It further suggested that capital gains tax should revert to a slab-based system, as was applicable in the last fiscal year, and that input costs be reduced by rationalising taxes on construction materials.
The task force also recommended reducing the policy rate to single digits—an idea the central bank and the IMF did not accept.
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Q1. What is the latest update on the property transaction tax in Pakistan?
Authorities have announced the immediate removal of the 3% federal tax on the initial sale of properties, reversing a policy that had caused significant disruption in the real estate market.
Q2. Why was the property transaction tax scrapped?
The tax was removed following industry backlash and consultations with the International Monetary Fund (IMF). It had a detrimental impact on real estate activity and faced legal challenges due to constitutional jurisdiction concerns.
Q3. Was the 5% tax on non-filers also withdrawn?
Yes, along with the 3% charge on tax filers, the 5% levy on non-filers has also been set aside. A formal summary has been submitted to begin the legislative process.
Q4. Who recommended the removal of this tax?
The proposal came from the Prime Minister’s Housing Task Force, which argued that the tax was unconstitutional and discouraged growth in the property sector.
Q5. Is the removal of this tax confirmed?
Not entirely. The proposal is currently awaiting approval from the federal cabinet and legislative bodies, but officials aim to complete the process within the current month.
Q6. How did this tax affect the real estate sector?
The tax applied to all property transactions after June 30, 2024, including homes, plots, and commercial units. It significantly increased transaction costs and was widely opposed by developers and property buyers.
