The federal excise duty (FED) introduced in the Finance Act of 2024 on the transfer of plots and commercial properties is expected to be repealed as part of a broader strategy to support Pakistan’s real estate sector, according to a report by Business Recorder.
Sources suggest that the FED did not meet the government’s revenue expectations during the first half of the 2024-25 fiscal year, generating minimal income. As a result, the Federal Board of Revenue (FBR) is reportedly planning to recommend the removal of the FED on the transfer or allotment of commercial properties, as well as the first allotment or transfer of residential plots and open land. If approved, this proposal could be included in the upcoming federal budget.
The government is aiming to reduce transaction taxes on buying and selling immovable properties to stimulate the real estate market. A task force meeting focused on housing sector development has been delayed twice due to the Prime Minister’s schedule but is expected to be held this week.
The task force has recommended the removal of Section 7E of the Income Tax Ordinance, the abolition of the capital value tax (CVT) in Islamabad, and a reduction in property transaction taxes. The proposal also includes standardizing and rationalizing stamp tax rates across provinces and the Islamabad Capital Territory and establishing consistent taxation policies via the National Tax Council. Furthermore, it advocates for waiving wealth reconciliation for real estate and construction investments up to Rs. 50 million.
Real estate expert Muhammad Ahsan Malik stated that implementing the task force’s recommendations would significantly benefit the sector. He emphasized the importance of lowering construction and property transfer costs and called for an end to over-selling practices in real estate. He also proposed penalties for developers or builders who fail to deliver properties on time and suggested that all transactions should be processed through “ESCROW” accounts to safeguard public investments.
Currently, developers and builders collect a 3% duty on property transactions from buyers who are active taxpayers. For buyers who are not active taxpayers, the FED is set at 5%, or 7% for those who have not filed income tax returns. Developers are required to deposit the collected duty with the federal government on the same day, but there is no mechanism in place to verify if the payments are being made, which has reduced the effectiveness of this tax measure during the 2024-25 fiscal year, Malik noted.
