ISLAMABAD: Government of Pakistan has decided to swiftly eliminate the 3% federal excise duty (FED) that has been applied to the first sale of properties since July.
This decision reverses a controversial tax policy that has significantly impacted the real estate sector over the past ten months, as confirmed by a senior official from the Federal Board of Revenue (FBR).
This reversal follows discussions with the International Monetary Fund (IMF). An IMF budget mission is expected to arrive in Pakistan on May 14 to review the budget for the fiscal year 2025-26.
Sources indicate that the 3% FED aimed at property transfers for tax filers, and a 5% rate for non-filers, will be abolished. The FBR has already submitted a summary to initiate the legal process for the repeal of the duty.
The Prime Minister’s task force on the housing sector advocated for the abolition of the 3% FED, with plans for implementation underway. Dr. Najeeb Memon, spokesperson for the FBR, stated that legislative action is forthcoming.
Revenue collection from this duty has been minimal from July to March this fiscal year, as many real estate authorities were hesitant to enforce it. The Constitution designates immovable property as a provincial matter, leading to legal challenges from taxpayers regarding the imposition of the duty.
Finance Minister Muhammad Aurangzeb has agreed to pursue the summary for the duty’s elimination, which will now be presented to the federal cabinet for amendments to the Federal Excise Duty Act. The government aims to abolish the duty by the end of this month, pending necessary legislative procedures.
IMF Resident Representative Mahir Binici did not comment on whether the IMF supports the abolition of the 3% FED.
This excise duty was imposed on the sale of residential houses, plots, and apartments in Pakistan after June 30, 2024.
It was introduced alongside the budget approved by the National Assembly, with rates of 3% for taxpayers who filed, 5% for late filers, and 7% for non-filers, collected at the time of booking, allotment, or transfer of properties.
Additionally, new taxes were enacted as part of the budget’s approval, including a Rs500,000 tax on farmhouses between 2,000 to 4,000 square yards, and Rs1 million on those exceeding 4,000 square yards within the Islamabad Capital Territory. Residential properties also faced new taxes, with homes from 1,000 to 2,000 square yards subject to Rs1 million, and those over 2,000 square yards to Rs1.5 million. A 4% stamp duty was also introduced on property transactions in the Islamabad Capital Territory.
Furthermore, a 10% surcharge on income tax for individuals earning Rs10 million annually was implemented right before the budget was passed.
Discussions are underway to consider abolishing this surcharge starting in July, with the government exploring options to ease the tax burden on salaried individuals through reduced rates and higher taxable income thresholds. These proposals will be contingent on the IMF’s approval next month.
The IMF budget mission is expected to arrive in Pakistan on May 14 to assess the upcoming fiscal year’s budget and associated tax measures before they are submitted to the National Assembly, likely on June 4 or 5, just prior to the Eid holidays.
