Expected Withdrawal of FED for Transfer of Commercial Property Plots
February 21, 2025
Introduction
The real estate sector is expected to receive facilitation through the withdrawal of the federal excise duty (FED) on the transfer of plots and commercial property, as stated in the Finance Act of 2024.
1. FBR Plans to Remove FED on Property Transfers in Budget 2024-25
According to sources, it has been confirmed that the aforementioned tax policy did not meet its intended goals in the initial six months of 2024-25. Thus far, the generated income from this policy has been minimal. It is expected that the Federal Board of Revenue (FBR) will suggest the government to eliminate the Federal Excise Duty (FED) on the allocation or transfer of commercial properties and the first allocation or first transfer of open plots or residential properties.
Once the proposal has been finalized, it is expected to be put into effect in the upcoming federal budget.
2. Govt Plans Tax Cuts on Real Estate to Boost Growth
The government has been urged to rationalize the federal taxes on immovable property, which have been deemed as prohibitive.
Sources indicate that the government is planning to reduce transaction taxes on buying and selling real estate to boost growth in the sector. Meanwhile, the housing sector task force meeting, initially set for last week, has been postponed twice due to the Prime Minister’s busy schedule. However, it is now expected to take place sometime this week.
The Taskforce has suggested the elimination of section 7E from the Income Tax Ordinance, as well as the removal of capital value tax (CVT) in Islamabad. In addition, they have proposed a decrease in transaction taxes for the purchase and sale of immovable properties.
3. Govt Urged to Standardize Property Taxes & Cut Costs to Boost Real Estate
The recommendation states that there should be a standardization and rationalization of stamp tax rates among provinces and ICT. It also suggests the abolition of CVT in Islamabad and the implementation of uniform taxation policies through the National Tax Council. Additionally, it proposes a waiver of wealth reconciliation for investments up to Rs. 50 million in the real estate and construction sector.
According to a senior real estate expert, Muhammad Ahsan Malik, the real estate sector would benefit positively from the implementation of the Taskforce’s recommendations. It is advised that the government should decrease the expenses associated with construction and property transfer.
4. Expert Calls for ESCROW Accounts & Penalties to Regulate Real Estate Sector
According to him, the practice of over-selling in the real estate industry needs to be put to an end.
In case a developer or builder fails to deliver the plot/apartment/house, etc., to the buyer within the agreed upon time, they should face penalties. To safeguard the investments of the general public, the developers and builders should solely use “ESCROW” accounts for their operations, as stated by the source.
According to him, currently, any developer or constructor must collect a three percent duty on the total consideration amount when allotting or transferring commercial property, as well as when making the first allotment or transfer of open plots or residential property, if the buyer is on the active taxpayers’ list.
- The Federal Reserve would constitute five percent of the total amount of consideration involved if the buyer has not yet filed their income tax return.
- The Federal Reserve would represent seven percent of the total consideration involved if the buyer is not listed as an active taxpayer.
- The responsibility of collecting the duty by the developer or builder will result in the amount being transferred to the federal government on the same day.
Nevertheless, there was no system in place to verify if the deducted funds had been transferred by the developer or builder into the national budget.
According to Ahsan Malik, the lack of a monitoring system hindered the success of the additional tax measure in meeting its intended goals in 2024-25.