In a significant development for Pakistan’s real estate and construction industry, Federal Board of Revenue (FBR) Chairman Rashid Mahmood has agreed, in principle, to reconsider high transaction taxes on property sales and purchases. The move aims to provide relief to the construction sector, facilitate affordable housing, and boost property market activity.
High Transaction Taxes Under Review
During a meeting of the Taxation-Task Force for the development of the housing sector, chaired by the FBR Chairman, stakeholders expressed concerns about the steep taxes under sections 236C and 236K of the Income Tax Ordinance 2001. These taxes, coupled with a 5% Federal Excise Duty (FED) and 4% provincial stamp duty, result in an overall tax burden of up to 13% on a single transaction. This high rate has been identified as a major factor contributing to a decline in property transactions.
The FBR Chairman acknowledged these concerns and agreed to consider reducing these taxes. He also indicated that the 5% FED on property transactions might be reconsidered, contingent upon provincial governments not increasing their respective taxes on real estate.
Incentives for First-Time Homebuyers and Affordable Housing
The meeting highlighted the need for fiscal measures to promote affordable housing schemes and provide tax relief to first-time homebuyers. The Chairman formed a committee, led by the Member Policy FBR, to develop actionable recommendations for rationalizing property taxes at federal and provincial levels.
The committee comprises notable representatives, including Federation of Realtors Pakistan President Sardar Tahir Mehmood, NAPHDA Chairman Maj General Aamir Aslam, ex-MPA Hafiz Mian M. Nauman, Policy & Planning Wing MoH&W DDG Waseem Hayat Bajwa, and Real Estate Analyst Ahsan Malik.
Alignment with Market Valuation
Another key issue discussed was aligning property valuation rates with actual market values to ensure fair taxation. The FBR Chairman proposed annual reviews of valuation rates in coordination with provincial governments and Inland Revenue Operations. This measure aims to improve transparency and reduce discrepancies in property assessments.
Streamlining Processes for Overseas Pakistanis
The FBR Chairman took a strong stance against granting concessions to non-filers but showed concern about the verification process for non-residents. He proposed an online verification system in collaboration with NADRA to simplify processes for overseas Pakistanis, minimizing reliance on field offices.
Addressing Section 7E and Idle Plots
The contentious income tax on deemed income under Section 7E was also discussed. While it was clarified that this tax does not apply to properties generating taxable income, concerns were raised about its impact on undeveloped plots. The FBR Chairman agreed to review the tax’s design and definitions to address claims of double taxation and its potential burden on idle properties.
Enhanced Oversight and Future Outlook
The Directorate General of Designated Non-Financial Business and Professions (DNFBPs) will be strengthened with additional resources to improve transparency and oversight. A robust digitalization strategy is also under consideration to streamline operations.
Real estate experts expressed optimism that the finalized incentive package, expected to be announced by February 2025, would bring substantial relief to the industry. The proposed reforms are anticipated to include tax reductions, incentives for affordable housing, and measures to stimulate investment in the real estate sector.
This development marks a pivotal step towards revitalizing Pakistan’s real estate market and fostering growth in the construction sector. Industry experts and stakeholders await further deliberations and the announcement of the finalized relief measures.
