Reduced withholding tax rates on property transactions aim to encourage documentation and expose undeclared wealth in real estate
ISLAMABAD: The Federal Board of Revenue is set to intensify scrutiny of real estate transactions after proposing substantial reductions in withholding tax rates on the sale and purchase of immovable property through the Finance Bill 2026.
Tax officials believe lower transaction taxes will encourage greater documentation of property deals, making it easier for authorities to identify undeclared wealth and unreported investments in Pakistan’s real estate sector.
The move forms part of the government’s broader strategy to broaden the tax base, improve compliance and reduce the use of black money in property transactions.
Significant reduction in tax on property sales
The Finance Bill 2026 proposes a major reduction in advance tax collected on the sale or transfer of immovable property under Section 236C of the Income Tax Ordinance 2001.
At present, sellers are subject to withholding tax rates ranging from 4.5 per cent to 5.5 per cent depending on the value of the transaction. The bill seeks to replace the tiered structure with a single tax rate of 2.75 per cent regardless of the property’s value.
Proposed changes under Section 236C
| Gross Amount of Consideration | Current Tax Rate | Proposed Tax Rate |
| Up to Rs50 million | 4.5% | 2.75% |
| Above Rs50 million up to Rs100 million | 5.0% | 2.75% |
| Above Rs100 million | 5.5% | 2.75% |
The proposed measure will significantly reduce transaction costs, particularly for high-value property sales.
Lower taxes proposed for property buyers
The government has also proposed reducing advance tax on the purchase of immovable property under Section 236K of the Income Tax Ordinance.
Currently, buyers pay advance tax ranging from 1.5 per cent to 2.5 per cent based on the fair market value of the property. Under the proposed amendments, a uniform rate of 1.25 per cent will apply across all property categories.
Proposed changes under Section 236K
| Fair Market Value | Current Tax Rate | Proposed Tax Rate |
| Up to Rs50 million | 1.5% | 1.25% |
| Above Rs50 million up to Rs100 million | 2.0% | 1.25% |
| Above Rs100 million | 2.5% | 1.25% |
The reduction is expected to lower the overall cost of acquiring property and encourage greater participation in the formal real estate market.
FBR aims to improve documentation
Tax experts believe the reductions are intended to remove a major barrier to documented transactions while allowing authorities to collect more accurate information on property investments.
By lowering upfront tax costs, the government hopes more buyers and sellers will conduct transactions through official channels, providing the FBR with a clearer audit trail and better visibility of financial flows in the sector.
Officials are also expected to utilise enhanced digital monitoring and data analytics to identify discrepancies between declared income and property investments.
Real estate sector may benefit
Market participants have welcomed the proposed reductions, arguing that high transaction taxes have long discouraged documented property dealings and contributed to underreporting of values.
The lower tax rates are expected to stimulate activity in the real estate sector, improve liquidity and support broader economic activity linked to construction, housing and property development.
If approved by Parliament, the new rates will take effect from the 2026-27 tax year and form part of the government’s wider efforts to balance tax enforcement with measures aimed at promoting economic growth and documentation of the economy.
