Repeal of Federal Excise Duty on Property Transfers to Boost Real Estate Industry
February 14, 2025
Introduction
The government seeks to reduce transaction taxes for the purchase and sale of immovable properties.According to a report by Business Recorder, the Finance Act of 2024 is expected to repeal the federal excise duty (FED) on the transfer of plots and commercial properties in order to boost the real estate sector.
1. FBR to Remove FED on Property Transfers in Budget 2024-25?
According to sources, the implementation of this tax measure in the first half of the fiscal year 2024-25 did not produce the anticipated outcomes, resulting in only a small amount of revenue being generated.
According to reports, the FBR is planning to propose the removal of the Federal Excise Duty (FED) on the allotment or transfer of commercial properties, as well as on the initial allotment or transfer of open plots and residential properties. If this suggestion is accepted, it may be put into effect in the upcoming federal budget.
2. Govt Mulls Tax Cuts to Boost Real Estate Sector
According to sources, the government is considering reducing transaction taxes on the purchase and sale of immovable properties in order to boost the real estate industry. The meeting of the housing sector development task force, which has been delayed twice due to the Prime Minister’s busy schedule, is expected to finally take place this week.
The committee has proposed the elimination of Section 7E from the Income Tax Ordinance, the removal of the capital value tax (CVT) in Islamabad, and a decrease in the transaction taxes for property transactions.
Furthermore, it has been proposed to standardize and rationalize the stamp tax rates among provinces and the Islamabad Capital Territory. This includes implementing consistent taxation policies through the National Tax Council and exempting wealth reconciliation for investments in real estate and construction worth up to Rs. 50 million.
According to Muhammad Ahsan Malik, a seasoned professional in the real estate industry, the sector would greatly benefit from the implementation of the recommendations put forth by the task force. He stressed the importance of decreasing construction and property transfer expenses and urged for a halt to the unethical practice of overselling in the real estate market.
3. Penalties, Escrow Accounts, and FED Changes Proposed for Real Estate
The suggestion was made that penalties should be imposed on developers or builders who are unable to deliver properties within the promised timeframe. Additionally, it was proposed that all transactions should be conducted through “ESCROW” accounts in order to safeguard public investments.
At present, when the buyer is an active taxpayer, a duty of three percent on the gross consideration for property transactions is collected by developers and builders.
For individuals who have not submitted an income tax return, the federal excise duty (FED) is charged at a rate of 5%. However, for those who are not registered as active taxpayers, the FED rate is increased to 7%.
4. FBR Faces Legal Challenge, Plans New Property Rates for 54 Cities
- According to Ahsan Malik, the lack of a system to confirm the deposit of collected duty to the federal government on the same day has impeded the success of this extra tax measure in the 2024-25 fiscal year, despite the requirement for developers to do so.
- The Islamabad High Court has served a notice to the Federal Board of Revenue (FBR) in response to a challenge by the Defence Housing Authority (DHA) regarding the imposition of property tax.
The Federal Board of Revenue is set to publish updated property rates for a total of 54 cities.