Islamabad: The federal government is likely to abolish the Federal Excise Duty (FED) imposed on the transfer of plots and commercial properties in a bid to stimulate real estate activity. Sources indicate that the tax, introduced through the Finance Act 2024, has failed to generate significant revenue in the first half of the 2024-25 fiscal year, prompting the Federal Board of Revenue (FBR) to propose its withdrawal.
The FED currently applies at different rates depending on the tax status of the buyer:
3% of the property’s value if the buyer is on the Active Taxpayers’ List (ATL).
5% if the buyer has filed an income tax return but is not on the ATL.
7% if the buyer has neither filed a return nor appears on the ATL.
Under the existing framework, developers and builders are responsible for collecting and depositing this duty with the federal government. However, experts highlight that there is no clear mechanism to monitor whether the collected amounts are actually submitted to the national treasury. This loophole has contributed to the FED’s failure in achieving its intended fiscal targets.
In addition to the proposed FED withdrawal, the government is considering reducing transaction taxes on real estate sales to encourage investment. A taskforce for the development of the housing sector has put forward multiple recommendations, including:
Abolishing Section 7E of the Income Tax Ordinance, which imposes deemed income tax on immovable property.
Eliminating Capital Value Tax (CVT) on property transactions in Islamabad.
Standardizing stamp duty rates across all provinces and the Islamabad Capital Territory (ICT).
Ensuring uniform taxation policies nationwide through the National Tax Council.
Allowing a wealth reconciliation waiver for investments in real estate and construction up to Rs. 50 million.
The taskforce meeting to finalize these measures has been postponed twice due to the Prime Minister’s busy schedule but is expected to take place within the week.
Real estate experts emphasized that implementing these recommendations could have a significant positive impact on the sector. He urged the government to not only lower property transfer costs but also reduce the overall cost of construction.
He also stressed the need for stricter regulations on property developers and builders, suggesting penalties for delays in handing over properties to buyers. Additionally, he proposed that all transactions be conducted through escrow accounts to protect public investments and prevent financial mismanagement.
If the government finalizes the FED withdrawal proposal, it will likely be implemented in the upcoming federal budget. These measures, coupled with reduced transaction taxes, could provide a much-needed boost to Pakistan’s real estate market, making property investment more accessible and attractive.
Samra Zulfiqar, a real estate analyst at Zameen.com, is passionate about finding projects that offer buyers the best returns. Her keen insights spotlight the market’s most promising opportunities.
