Move Follows Real Estate Industry Pushback; Broader Tax Relief Expected Ahead of Budget
ISLAMABAD: The government has decided to scrap the 3% Federal Excise Duty (FED) on the initial sale of all properties in Pakistan, reversing a tax policy introduced just 10 months ago that had caused significant disruption in the real estate sector.
A senior official from the Federal Board of Revenue (FBR) confirmed that the decision was made in consultation with the International Monetary Fund (IMF). An IMF team is also set to arrive in Pakistan on May 14 to review the upcoming 2025–26 budget.
The abolished FED had been set at 3% for tax filers and 5% for non-filers, applied during the booking, allotment, or transfer of property. The FBR has already submitted a proposal to initiate the legal process for removing the tax.
A spokesperson for the FBR, said the prime minister’s housing task force had recommended eliminating the FED and that legislation to implement the change is expected soon.
Revenue collection from this tax has been minimal between July and March of the current fiscal year, largely due to resistance from real estate authorities, who argue the tax infringes on provincial jurisdiction. Under Pakistan’s Constitution, immovable property falls under provincial authority, and the tax has been challenged in court.
Finance Minister Muhammad Aurangzeb has approved moving the summary for legal amendments. The proposal will be placed before the federal cabinet, with the government aiming to finalize the change within April, pending necessary legislative approval.
IMF Resident Representative Mahir Binici did not comment on whether the IMF supported abolishing the FED.
Originally introduced in last year’s budget, the FED applied to all property transactions post-June 30, 2024—including commercial properties and first-time sales of residential units—with rates of 3% for filers, 5% for late filers, and 7% for non-filers.
Additional budget measures also included a Rs500,000 tax on farmhouses between 2,000–4,000 square yards and Rs1 million on those exceeding 4,000 square yards within Islamabad Capital Territory (ICT). Residential homes between 1,000–2,000 square yards were taxed Rs1 million, and those above 2,000 square yards were taxed Rs1.5 million. A 4% stamp duty on property transactions in ICT was also introduced.
To make matters worse for taxpayers, the government imposed a 10% income tax surcharge on individuals earning over Rs10 million annually. Sources indicate this surcharge may be removed from July, as part of broader tax relief being considered for salaried individuals. Proposals include increasing the taxable income threshold and reducing income tax rates, pending IMF approval next month.
The IMF’s budget review mission is expected to arrive mid-May, with the federal budget likely to be presented in early June before the Eid holidays.
A Real estate dealer, also a member of the PM’s housing task force, said eliminating the FED would provide much-needed relief, noting that it was a non-adjustable tax, unlike withholding taxes.
The real estate sector has seen stagnant growth, driven by high property prices and heavy taxes on transactions. The IMF generally opposes speculative activity in real estate and supports higher withholding tax rates instead.
Despite the sluggish market, the government still managed to collect Rs108 billion in withholding taxes on property sales and purchases in the first half of the fiscal year—an 18% increase from the same period last year.
The housing task force has also urged the government to scrap the “deemed income tax” on properties, calling it poor legislation and another overreach into provincial matters. Other suggestions include harmonizing stamp duty rates across provinces and Islamabad, abolishing the capital value tax in ICT, and unifying property tax policies through the National Tax Council.
Further proposals include updating property valuations every three years, offering tax exemptions for first-time homebuyers and low-cost housing, and returning to a slab-based capital gains tax system. The task force also recommended cutting taxes on construction materials and lowering the policy interest rate to single digits—a move not currently supported by the central bank or the IMF.
