Tax reductions and the abolition of deemed income provisions are expected to boost property transactions and restore investor confidence.
ISLAMABAD, June 15, 2026: The Finance Bill 2026 signals a significant shift in the government’s approach towards Pakistan’s real estate and construction sectors, with proposed tax reforms aimed at reviving market activity, improving liquidity, and restoring investor confidence.
According to tax experts and KPMG Chartered Accountants, the proposed measures represent a departure from the policies adopted under the Finance Acts of 2024 and 2025, which primarily focused on stricter documentation requirements and higher advance taxation rates.
The experts noted that the latest proposals indicate the government’s recognition that elevated transaction taxes in recent years have substantially suppressed property transactions, reduced market activity, and discouraged the formalisation of real estate dealings by increasing the cost of documented property transfers.
Lower Property Transaction Taxes to Support Market Activity
One of the key proposals in the Finance Bill 2026 is the rationalisation of taxes on property transactions. The Bill proposes reducing advance taxes under Section 236C of the Income Tax Ordinance, 2001, applicable to property sellers, and Section 236K, applicable to buyers.
According to experts, the proposed reductions of approximately 2.75 per cent for sellers and 1 per cent for buyers are expected to lower upfront transaction costs and improve affordability for both investors and end-users.
The measure is anticipated to encourage greater formalisation of property transactions, enhance liquidity, and stimulate activity across residential, commercial, and industrial real estate segments, particularly after a prolonged market slowdown.
Abolition of Section 7E to Reduce Ownership Costs
The Finance Bill also proposes the abolition of deemed income taxation on immovable property through the removal of Section 7E of the Income Tax Ordinance, 2001.
Experts said this development was widely anticipated following the decision of the Federal Constitutional Court against the provision.
The proposed removal of Section 7E would eliminate the notional annual tax imposed on the ownership of immovable property in Pakistan, significantly reducing the carrying costs associated with holding real estate assets.
Analysts believe the move could encourage long-term investment in the sector and motivate taxpayers to redirect savings towards real estate investments.
Removal of Capital Value Tax Further Eases Burden
In continuation of previous reforms, the Finance Act 2025 had already abolished Federal Excise Duty (FED) on immovable property transactions.
The Finance Bill 2026 goes a step further by proposing the discontinuation of Capital Value Tax (CVT) on property transactions. Experts estimate that the measure could lower transaction costs by an additional 1 to 2 per cent.
Collectively, these initiatives are expected to substantially reduce the fiscal burden associated with property acquisition and disposal, improving market sentiment and supporting higher transaction volumes.
Limited Relief for Construction Sector
While the Bill introduces incentives for the real estate market, relief measures for the construction industry remain limited.
The proposed reduction in customs duties on specialised construction-related vehicles is expected to lower machinery acquisition costs and improve operational efficiency for developers and contractors.
However, experts noted that no significant relief has been provided for core construction materials, including cement, steel, and related inputs, which continue to bear embedded sales taxes.
As a result, although equipment costs may decline marginally, the overall cost structure for construction activities is expected to remain largely unchanged.
Positive Impact on Allied Industries
Experts believe that increased activity in the real estate sector could generate positive spillover effects for several allied industries, including cement, steel, ceramics, paints, electrical equipment, and construction services.
Property developers holding unsold inventories may also benefit from improved sales volumes and enhanced liquidity as market confidence strengthens.
Nevertheless, analysts cautioned that despite the proposed tax incentives, the government’s emphasis on documentation and enforcement suggests that regulatory oversight of the sector will continue to remain stringent.
Growth-Oriented Policy Framework
Overall, experts said the Finance Bill 2026 reflects a transition from a revenue-focused taxation model towards a more growth-oriented policy framework.
The proposed reforms are aimed at stimulating investment, improving market liquidity, encouraging formalisation, and rebuilding confidence in Pakistan’s real estate and construction sectors after years of subdued activity.
If implemented, the measures could provide much-needed momentum to one of the country’s key economic sectors while supporting broader economic growth through increased activity in related industries.
