ISLAMABAD: The government has decided to immediately abolish the 3% federal excise duty (FED) being charged on the first sale of all properties in Pakistan after July. This reverses a contentious tax measure, that has severely damaged the real-estate sector, after almost 10 months of its introduction.
The decision has been taken in consultation with the International Monetary Fund (IMF), a senior Federal Board of Revenue (FBR) official confirmed to The Express Tribune on Tuesday. Separately, an IMF budget special mission is reaching Pakistan on May 14 to vet the fiscal year 202526 budget.
It has been decided that the 3% FED on allotment or transfer of property by filers, and 5% by non-filers, will be abolished, said the sources. They added that a summary has already been moved by the FBR to initiate the legal process for abolishing the duty.
The prime minister’s task force on the housing sector has recommended scrapping the 3% FED, and its decision is proposed to be implemented in due course, said Dr Najeeb Memon, FBR spokesperson. He added that legislation is expected to be introduced soon.
There has been negligible collection during the JulyMarch period of this fiscal year due to most real-estate authorities’ reluctance to accept the duty, which falls in the provincial domain. Under the Constitution, immovable property is a provincial subject, and taxpayers have challenged the duty in the courts.
Finance Minister Muhammad Aurangzeb has already given his consent to move the summary to abolish the duty. The matter will now be tabled before the federal cabinet to amend the Federal Excise Duty Act. The government wants to abolish the duty within this month, subject to required legislative approvals.
IMF Resident Representative, Mahir Binici, did not respond to a request regarding whether the IMF endorsed abolishing the 3% FED.
The duty had been imposed effectively on every house, plot, and apartment in Pakistan sold after June 30, 2024. The levy had been introduced at the time of the budget’s approval by the National Assembly. It applied to commercial properties and the first sale of residential plots or properties, with rates of 3% for filers, 5% for late filers, and 7% for non-filers, collected at the time of booking, allotment, or transfer.
As part of additional measures introduced on the eve of the budget’s approval, the government imposed a Rs500,000 tax on farmhouses ranging from 2,000 to 4,000 square yards, and Rs1 million on farmhouses over 4,000 square yards within the Islamabad Capital Territory.
Similarly, a Rs1 million tax was imposed on residential homes ranging from 1,000 to 2,000 square yards, while homes exceeding 2,000 square yards now attract a Rs1.5 million tax. A 4% stamp duty was also approved on the value of properties being traded in Islamabad Capital Territory.
Adding insult to injury, the government also imposed a 10% surcharge on income tax for individuals earning an annual income of Rs10 million just before the budget’s approval.
Sources said a proposal is under consideration to abolish this surcharge starting July. They added that the government is considering various options to reduce the tax burden on the salaried class by lowering tax rates and increasing the taxable income threshold. However, these proposals will be subject to IMF endorsement next month.
The IMF’s budget mission is scheduled to arrive in Pakistan on May 14 to vet the next fiscal year’s budget and tax measures before they are presented in the National Assembly, likely on June 4 or 5, just before the Eid holidays.
The finance minister stated last Saturday that the IMF mission on the budget would arrive around mid-May.
Abolishing the duty will boost the real-estate sector, as the duty is not adjustable, unlike withholding taxes, said Ahsan Malika real-estate dealer who was also part of the PM’s Task Force on Housing.
The real-estate sector is facing sluggish growth prospects due to high property prices and heavy transaction taxes. The IMF, as a policy, discourages speculative trade in the real-estate sector and has favoured substantially increasing withholding tax rates in the budget.
Despite the overall sluggish market, the government collected Rs108 billion in withholding taxes on property sales and purchases during the first half of this fiscal yearRs17 billion, or 18%, higher than the same period last year.
The PM’s task force had also recommended abolishing the deemed income tax on properties, which it described as bad legislation and a matter falling within the provincial domain. It also suggested standardising and rationalising stamp tax rates across provinces and Islamabad.
Other recommendations include abolishing the capital value tax in Islamabad and ensuring uniform taxation policies through the National Tax Council.
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.
