ISLAMABAD: The government has decided to immediately abolish the 3% Federal Excise Duty (FED) previously charged on the first sale of all properties in Pakistan after July, reversing a contentious tax measure that severely impacted the real-estate sector over the past 10 months.
A senior Federal Board of Revenue (FBR) official confirmed on Tuesday that the decision was made in consultation with the International Monetary Fund (IMF). Separately, an IMF budget special mission is scheduled to arrive in Pakistan on May 14 to review the fiscal year 2025-26 budget.
Sources revealed that the 3% FED on the allotment or transfer of property by filers, and 5% for non-filers, will be abolished. A summary to initiate the legal process has already been moved by the FBR.
Dr. Najeeb Memon, FBR spokesperson, stated that the Prime Minister’s Task Force on the Housing Sector had recommended scrapping the FED, and legislation to formalize this decision is expected soon.
Collection of the duty during the July–March period of the current fiscal year has been negligible, mainly due to the reluctance of real-estate authorities to enforce it, given that property taxation falls within the provincial domain under the Constitution. Taxpayers had also challenged the FED in courts.
Finance Minister Muhammad Aurangzeb has already approved the move to abolish the duty. The matter will now be presented to the federal cabinet to amend the Federal Excise Duty Act, with the government aiming to complete the process within this month, subject to legislative approval.
IMF Resident Representative Mahir Binici did not respond to a request for comment on whether the IMF endorsed abolishing the 3% FED.
The FED had been imposed on every house, plot, and apartment sold in Pakistan after June 30, 2024. Introduced during the previous budget approval, it applied to both commercial properties and first sales of residential plots, with rates of 3% for filers, 5% for late filers, and 7% for non-filers, collected at the time of booking, allotment, or transfer.
Additional taxes introduced alongside the FED included a Rs500,000 tax on farmhouses ranging from 2,000 to 4,000 square yards and a Rs1 million tax on farmhouses exceeding 4,000 square yards within the Islamabad Capital Territory. A Rs1 million tax was also imposed on residential homes between 1,000 to 2,000 square yards, while homes larger than 2,000 square yards were taxed Rs1.5 million. Furthermore, a 4% stamp duty was approved on property transactions in Islamabad.
Adding to the financial burden, the government had also imposed a 10% income tax surcharge on individuals earning Rs10 million or more annually.
Sources said there is now a proposal under consideration to abolish this income tax surcharge starting in July. Additionally, the government is weighing options to ease the tax burden on the salaried class by lowering tax rates and increasing the taxable income threshold, although any such changes will require IMF approval next month.
The IMF’s budget mission will assess these and other measures when it arrives on May 14. The federal budget is expected to be presented in the National Assembly on June 4 or 5, ahead of the Eid holidays.
Speaking last Saturday, the finance minister confirmed the IMF budget mission’s arrival around mid-May.
Real-estate dealers welcomed the abolition of the FED. Ahsan Malik, a real-estate dealer and member of the PM’s Task Force on Housing, said the move would boost the sector, as the FED was not adjustable against other taxes, unlike withholding taxes.
The real-estate market has been sluggish, impacted by high property prices and heavy transaction taxes. The IMF generally discourages speculative trade in real estate and supports raising withholding tax rates to curb speculation.
Despite slow market conditions, the government collected Rs108 billion in withholding taxes on property transactions during the first half of the current fiscal year—an 18% (Rs17 billion) increase compared to the same period last year.
The PM’s Task Force on Housing had also recommended abolishing the controversial deemed income tax on properties, calling it flawed legislation encroaching on the provincial domain. It further advocated for the standardization and rationalization of stamp duties across provinces and Islamabad.
Other key recommendations included scrapping the capital value tax in Islamabad, ensuring uniform tax policies through the National Tax Council, and revising property valuations every three years to align with market prices.
The task force also proposed tax exemptions for specific categories, such as low-cost housing, government plots, and first-time homebuyers, along with reverting capital gains tax to a slab-based system, as used in the previous fiscal year.
Finally, it called for lowering input costs by rationalizing taxes on construction materials and suggested reducing the central bank’s policy rate to single digits—an idea, however, that the central bank and the IMF have so far rejected.
