ISLAMABAD: The federal excise duty (FED), imposed through the Finance Act, 2024 on the transfer of plots and commercial property, is expected to be withdrawn as part of efforts to support the real estate sector.
It has been reliably learnt that this taxation measure failed to deliver the intended results during the first six months of the 2024-25 fiscal year. Revenue generated through the FED has been negligible so far. Sources reveal that the Federal Board of Revenue (FBR) is likely to propose the abolition of FED on the allotment or transfer of commercial properties, as well as on the first allotment or transfer of open plots or residential properties.
If approved, the proposal will be implemented in the upcoming federal budget.
Additionally, the government is considering reducing transaction taxes on the buying and selling of immovable properties to stimulate growth in the real estate sector, sources added. The meeting of the taskforce for the development of the housing sector has been postponed twice due to the Prime Minister’s heavy schedule last week. However, the meeting is expected to take place during the current week.
The taskforce has recommended the abolition of Section 7E of the Income Tax Ordinance, elimination of capital value tax (CVT) in Islamabad, and a reduction in transaction taxes on the purchase and sale of immovable properties.
It has also proposed standardizing and rationalizing stamp tax rates across provinces and the Islamabad Capital Territory (ICT), abolishing CVT in Islamabad, ensuring uniform taxation policies through the National Tax Council, and offering a waiver of wealth reconciliation requirements for investments in the real estate and construction sector up to Rs. 50 million.
When contacted, Muhammad Zafar, a senior real estate expert, stated that implementing the taskforce’s recommendations would have a positive impact on the sector. He emphasized that the government should focus on reducing the cost of construction as well as the cost of property transfers.
He further stressed the need to curb the practice of over-selling in the real estate sector. Developers or builders who fail to hand over plots, apartments, houses, etc., to purchasers on time should face penalties, he added. Zafar suggested that developers and builders should operate exclusively through ESCROW accounts to safeguard public investments.
Currently, developers or builders are required to collect a duty at the rate of three percent of the gross amount involved if the buyer appears on the active taxpayers’ list.
If the buyer has not filed an income tax return, the applicable FED rises to five percent. Meanwhile, if the buyer is not on the active taxpayers’ list, the FED increases further to seven percent of the gross amount involved.
The collected duty must be credited to the federal government on the same day.
However, there is no effective mechanism in place to monitor whether developers or builders actually deposit the collected duty into the national treasury. Due to this lack of oversight, the additional taxation measure has failed to achieve its intended goals during the 2024-25 fiscal year.
