The International Monetary Fund (IMF) has approved a 2% reduction in property purchase tax, providing relief to buyers in Pakistan’s real estate market. This decision, effective from April 2025, aims to ease financial burdens on investors and stimulate transactions in the sector. However, the withholding tax (WHT) on property sellers remains unchanged.
Key Agreement Between Pakistan and IMF
After prolonged negotiations, the Federal Board of Revenue (FBR) convinced the IMF to approve a reduction in WHT for property purchasers. The real estate sector had been under strain, especially in Sindh and Punjab, due to what developers described as double taxation during property registrations.
The IMF also agreed to lower the Federal Excise Duty (FED) on property buyers while keeping the rates unchanged for sellers. Additionally, the lender approved a reduction in Pakistan’s tax collection target for March 2025 by Rs60 billion due to the extended Eid ul-Fitr holidays.
Real Estate Sector Faces Double Taxation
The Association of Builders and Developers of Pakistan (Abad) raised concerns about double taxation affecting property developers and housing societies. In Punjab, a taxation dispute led to delays in issuing property registries, causing uncertainty in the market.
As a result, developers were forced to pay WHT at both the allotment and registration stages, further straining the industry.
Read: PSX Rally Ends as KSE-100 Index Drops 327 Points
Pakistan Pushes for Lower Tax Rates
During negotiations, the FBR requested the IMF to cut WHT for both property buyers and sellers under Sections 236C and 236K of the Income Tax Ordinance. However, the IMF only approved a reduction for purchasers.
Previously, the WHT rates for buyers ranged between 3% and 4%, depending on property value. Under the new agreement, these rates will drop by 2%, making transactions more affordable. Additionally, the higher FED slab of 10% has been reduced to 9% for buyers.
To justify the tax reduction, the FBR presented data to the IMF, highlighting how high taxes discouraged investment and led to capital flight. The argument was that lowering transaction costs would boost real estate activity, increasing revenue in the long run.
IMF Revises Tax Collection Target
The IMF has also adjusted Pakistan’s tax collection target for the current fiscal year. Initially set at Rs12,970 billion, the target is now revised to Rs12,332-12,334 billion.
For March 2025, the FBR requested a reduction of Rs70 billion, citing the impact of Eid ul-Fitr holidays. The IMF approved a Rs60 billion reduction but asked Pakistan to increase tax collections in April and May to meet the revised annual target.
Final Steps Before Implementation
Following virtual meetings with IMF officials on Friday night, Pakistani authorities expect to finalize the Memorandum of Economic and Financial Policies (MEFP) soon.
Pakistani authorities are now waiting for the IMF’s official written response. Once received, the proposal will be finalized and presented for government approval.
Follow us on Google News, Instagram, YouTube, Facebook,Whats App, and TikTok for latest updates
