ISLAMABAD: The Federal Board of Revenue (FBR) has announced a significant 25% increase in tax collection from property transactions during the first nine months (July-March) of the current fiscal year 2024-25. The FBR collected a total of Rs169 billion in Withholding Tax (WHT) on the sale and purchase of immovable property, a notable rise from the Rs136 billion collected during the same period last year.
This increase in revenue comes despite a recorded nearly 15% decrease in the number of actual property transactions during the current fiscal year. The FBR had initially set an ambitious target of a 50% rise in property-related taxes for FY2024-25, following substantial hikes in tax rates. While the 24% growth in property taxes represents a considerable increase, it falls short of the initial projections.
Evolution of Property Tax Policies
The tax landscape for property transactions in Pakistan has undergone considerable changes in recent years. For the tax year 2021, the WHT rate under Section 236C for the sale of immovable property was set at 1% for filers and 2% for non-filers. These rates were doubled by 2023, increasing to 2% for filers and 4% for non-filers.
The current tax year 2024 has seen further escalation, with rates now standing at 3% for filers and a significant 6% for non-filers. Similarly, the advance tax on property purchases has seen a substantial upward revision, moving from 1% for filers and 2% for non-filers in 2021 to 3% for filers and a high of 10.5% for non-filers in 2024.
Property Sector’s Contribution to National Revenue
Despite the fewer transactions, the enhanced tax rates have ensured that the property sector remains a significant contributor to national revenue. The Rs169 billion collected in the first nine months of FY2024-25 represents a 24.3% increase over the previous year’s collection, underscoring the sector’s continued importance within the country’s overall tax framework.
However, the government is currently evaluating potential changes to the Federal Excise Duty (FED) applied to property transactions. The FED, which is levied at 3% for filers, 5% for late filers, and 7% for non-filers, has yielded less than Rs2 billion in the first nine months of the current fiscal year. A proposal to abolish this particular tax is reportedly under review, although it has not yet received formal approval from the federal cabinet.
Salaried Class Leads in Tax Contribution
In a comparative analysis of tax contributions, the salaried class has collectively paid approximately Rs370 billion in taxes during the current fiscal year. This figure surpasses the total contribution from the property sector over the same period, highlighting a growing trend where the salaried population is becoming the largest single contributor to national revenue, outstripping sectors like property and exporters.
The government’s ongoing efforts to fine-tune tax rates on property transactions, coupled with the deliberations surrounding the future of the FED on property, signal a continued focus on the real estate sector as a key source of government revenue. The FBR remains committed to improving tax compliance and boosting revenue generation from property deals in the future.
