Government abolishes 3% Federal Excise Duty on property transactions
April 18, 2025
The government has opted to eliminate the 3% federal excise duty (FED) imposed on the initial sale of all properties in Pakistan effective immediately after July. This decision reverses a controversial tax policy that has significantly harmed the real estate industry, nearly 10 months after it was implemented.
1. FBR Confirms 3% FED Removal After IMF Discussions
A senior official from the Federal Board of Revenue (FBR) confirmed to The Express Tribune on Tuesday that the decision was made after discussions with the International Monetary Fund (IMF). Additionally, a special IMF mission focused on the budget will arrive in Pakistan on May 14 to review the budget for the fiscal year 2025-26.
Sources have indicated that the 3% Federal Excise Duty (FED) on property allotments or transfers for filers, and the 5% for non-filers, will be eliminated. They also mentioned that the Federal Board of Revenue (FBR) has already submitted a summary to commence the legal procedure for the removal of this duty.
Dr. Najeeb Memon, spokesperson for the FBR, stated that the task force on housing, appointed by the prime minister, has suggested eliminating the 3% FED. He mentioned that the implementation of this decision is anticipated to occur in the near future, with legislation likely to be introduced shortly.
2. Govt Plans FED Removal Amid Legal Challenges; Cabinet Approval Pending
The collection during the July-March timeframe of this fiscal year has been minimal, primarily because many real-estate authorities are hesitant to acknowledge the tax, which is under provincial jurisdiction. According to the Constitution, real property falls within provincial matters, and taxpayers have contested the tax in court.
Finance Minister Muhammad Aurangzeb has provided his approval to advance the proposal for eliminating the duty. This issue will now be presented to the federal cabinet for amendments to the Federal Excise Duty Act. The government aims to remove the duty within this month, pending the necessary legislative approvals.
The IMF’s Resident Representative, Mahir Binici, did not provide a response to an inquiry about the IMF’s stance on the elimination of the 3% FED.
The obligation will be applied uniformly to all houses, plots, and apartments in Pakistan that are sold following June 30, 2024. This charge was established when the National Assembly approved the budget. It is relevant to commercial real estate as well as the initial sale of residential plots or properties, with rates set at 3% for those who file on time, 5% for those who file late, and 7% for non-filers, which will be collected during the booking, allotment, or transfer process.
3. Govt Reviews Property Taxes, Income Surcharge Ahead of Budget
In conjunction with supplementary actions taken just before the budget’s ratification, the government has established a tax of Rs500,000 on farmhouses that span 2,000 to 4,000 square yards, and a tax of Rs1 million on those exceeding 4,000 square yards in the Islamabad Capital Territory.
In a similar vein, a tax of Rs1 million has been levied on residential properties that vary between 1,000 and 2,000 square yards. For properties that cover more than 2,000 square yards, the tax amount now stands at Rs1.5 million. Additionally, a stamp duty of 4% has been sanctioned on the transaction value of properties within the Islamabad Capital Territory.
To make matters worse, just prior to the budget’s approval, the government levied a 10% surcharge on income tax for individuals whose annual earnings exceed Rs10 million.
According to sources, there is a proposal being evaluated to eliminate this surcharge beginning in July. They mentioned that the government is exploring different strategies to lessen the tax load on salaried individuals by decreasing tax rates and raising the taxable income threshold. Nevertheless, these proposals will require approval from the IMF next month.
4. IMF Visit Set for May 14; PM Task Force Urges Real Estate Tax Reforms
The budget team from the IMF is set to visit Pakistan on May 14 to evaluate the budget and tax proposals for the upcoming fiscal year prior to their submission to the National Assembly, which is expected to occur around June 4 or 5, just ahead of the Eid festivities.
Last Saturday, the finance minister announced that the IMF delegation regarding the budget is expected to arrive approximately in mid-May.
According to Ahsan Malika, a real-estate agent and member of the Prime Minister’s Task Force on Housing, eliminating the duty will enhance the real-estate industry since this duty is not adjustable in the way that withholding taxes are.
The real estate market is experiencing slow growth potential as a result of elevated property costs and significant transaction taxes. The IMF, in its policy stance, opposes speculative activities within the real estate sector and has advocated for a considerable rise in withholding tax rates within the budget.
In spite of a generally slow market, the government garnered Rs108 billion in withholding taxes from property transactions during the first six months of this fiscal year, which is an increase of Rs17 billion, or 18%, compared to the equivalent timeframe last year.
The task force set up by the Prime Minister also advised the elimination of the deemed income tax on properties, labeling it as poor legislation and an issue that belongs to the provincial jurisdiction. Additionally, it proposed the standardization and rationalization of stamp tax rates throughout the provinces and Islamabad.
Additional suggestions involve eliminating the capital value tax in Islamabad and establishing consistent taxation policies via the National Tax Council.
5. Conclusion
The task force has suggested updating property valuations every three years to align with current market prices. Additionally, they propose implementing transaction tax exemptions for certain groups, including affordable housing, government-owned land, and individuals purchasing their first home.
Additionally, it recommended that the capital gains tax return to a tiered structure, similar to what was in place during the previous fiscal year, and that the expenses related to inputs be lowered by streamlining taxes on building materials.
The task force additionally suggested lowering the policy rate to single digits, a proposal that was not endorsed by either the central bank or the IMF.