ISLAMABAD: The International Monetary Fund (IMF) has agreed in principle to reduce the withholding tax (WHT) on property purchases by 2%, starting April 2025, while leaving the tax rates on property sellers unchanged.
The decision follows the Federal Board of Revenue’s (FBR) request for relief to lower transaction costs in the real estate sector.
The Fund has also consented to a reduction in Federal Excise Duty (FED) on buyers, decreasing the higher slab from 10% to 9%. However, the FED on sellers will remain at current levels. These concessions were part of a virtual meeting between Pakistani authorities and the IMF on Friday night, during which progress was made toward finalising the Memorandum of Economic and Financial Policies (MEFP). A staff-level agreement is expected next week.
The FBR had originally proposed reductions under Sections 236C and 236K of the Income Tax Ordinance for both sellers and purchasers, but the IMF approved the cut only for buyers. Current WHT rates for buyers range between 3 to 4%, depending on the value of the property.
The FBR presented data to support its argument that high transaction costs deterred investment and limited real estate activity. The IMF was informed that easing the tax burden on buyers could help stimulate the sector, which has seen capital flight due to high taxation.
In a separate concession, the IMF has approved a downward revision of the FBR’s tax collection target for March 2025 by Rs60 billion, reducing it from Rs1,220 billion to Rs1,160 billion. The adjustment accounts for fewer working days due to the Eid ul-Fitr holidays. The full-year target has also been revised from Rs12,970 billion to a new range of Rs12,332–12,334 billion.
To compensate for the March shortfall, the IMF has asked the FBR to boost collections in April and May to stay on track for the new annual target.
Meanwhile, the IMF has also approved the government’s plan to raise Rs1,257 billion through banks to help address the growing circular debt in the power sector.
