Islamabad, May 25, 2024 – The Federal Board of Revenue (FBR) has proposed the elimination of capital gains tax (CGT) relief on the sale of immovable property.
This recommendation is part of the FBR budget proposals for the fiscal year 2024-25, aimed at rectifying perceived imbalances in the current taxation regime.
The FBR’s tax strategists contend that the existing system provides excessive tax relief on capital gains from immovable property. The tax managers of the FBR argue that this has led to preferential treatment for property gains compared to gains from other types of assets. Currently, capital gains on the disposal of immovable property are taxed at a reduced or fixed rate under Section 37(1A) of the Income Tax Ordinance, 2001, in conjunction with Division VIII of Part-I of the First Schedule to the Ordinance, treating it as a separate block of income.
The proposed change by the FBR seeks to integrate the capital gains on immovable property into the normal progressive tax regime, similar to the taxation of gains on other assets. This would mean that gains from property sales would no longer benefit from the special reduced rates and would instead be subject to the standard progressive tax rates applicable to ordinary income.
This move is expected to generate significant additional revenue for the government, as the preferential rates on property sales have been a major avenue for tax relief, potentially leading to tax avoidance and a narrower tax base. By aligning the tax treatment of property gains with that of other assets, the FBR aims to ensure a more equitable and comprehensive taxation framework.
The proposal is likely to face scrutiny and debate among stakeholders, including real estate investors, developers, and policymakers. Proponents argue that the change will level the playing field and enhance tax equity, while critics may contend that it could dampen investment in the real estate sector.
As the government deliberates on the budget for the upcoming fiscal year, this proposed adjustment to CGT on immovable property will be a key point of discussion. The initiative of the FBR reflects its ongoing efforts to reform the tax system, broaden the tax base, and improve revenue collection in a manner that promotes fairness and economic efficiency.
