The federal government of Pakistan has announced a major policy shift by abolishing the 3 percent Federal Excise Duty (FED) on the first sale of all residential and commercial properties. This move, made in consultation with the International Monetary Fund (IMF), is aimed at revitalizing the country’s real estate sector and encouraging investment. The abolished duty previously applied to houses, plots, and apartments at the time of booking, allotment, or transfer. Additionally, the 5 percent FED applied to non-filers will also be eliminated under this new policy.
A formal summary to initiate the legislative process has already been forwarded and received approval from Finance Minister Muhammad Aurangzeb. The government plans to officially abolish the tax by the end of April, marking a significant shift in property taxation policy. This initiative follows recommendations from the prime minister’s housing task force, which has been actively advocating for real estate reforms to stimulate housing and infrastructure development.
Initially, the FED imposed a 3 percent tax on filers, 5 percent on late filers, and 7 percent on non-filers. Its complete withdrawal is expected to reduce the financial burden on property buyers and boost demand in the real estate market. Although the IMF has not yet publicly endorsed this reversal, the decision aligns with ongoing efforts to reform and rationalize the country’s tax structure.
The housing task force has also recommended the removal of the deemed income tax on properties and suggested harmonizing stamp duties across provinces. It proposed the abolition of the capital value tax in Islamabad and advocated for exemptions targeted at first-time homebuyers and low-cost housing schemes. Furthermore, it called for the return of a slab-based capital gains tax system and the rationalization of taxes on construction materials to lower building costs.
While the task force also urged a reduction in the central bank’s policy rate to single digits to further support the real estate sector, the proposal was turned down by both the IMF and the State Bank of Pakistan. In a related development, the government is also exploring the elimination of the 10 percent income tax surcharge currently levied on individuals earning over Rs. 10 million annually. These collective measures reflect the government’s commitment to reshaping the real estate landscape and promoting housing accessibility across Pakistan.
