Business body proposes lower withholding taxes and withdrawal of Section 7F
The Federation of Pakistan Chambers of Commerce and Industry (FPCCI) has proposed sweeping tax reforms for Pakistan’s property sector in the federal budget 2026-27, including sharp reductions in withholding taxes on property purchases and sales.
In its budget proposals, the FPCCI said the existing taxation framework on immovable property transactions was discouraging investment and increasing the cost of doing business in the real estate and construction sectors.
FPCCI proposes changes to property purchase tax
Under Section 236K of the Income Tax Ordinance, 2001, withholding tax is currently imposed on the purchase of immovable property at rates of up to 2.5% where the fair market value exceeds Rs100 million.
The FPCCI noted that the tax is charged on the gross transaction value regardless of the intended use of the property.
The business body recommended abolishing advance tax on the first property purchase made by tax filers and introducing a uniform withholding tax rate of 1% under Section 236K across all property values.
Proposal to cut tax on property sales
The FPCCI also proposed reducing withholding tax under Section 236C on the sale of immovable property.
Currently, withholding tax on property sales can reach 5.5% where the gross consideration exceeds Rs100 million.
According to the FPCCI, the tax applies to the total transaction value irrespective of whether the seller makes a profit or incurs a loss, placing a heavy financial burden on property sellers.
The chamber recommended introducing a flat 1% withholding tax rate for all property sale transactions to encourage documentation, improve transparency and reduce under-reporting in the real estate sector.
FPCCI seeks withdrawal of Section 7F
The FPCCI further called for the withdrawal of Section 7F introduced through the Finance Act 2024.
Under the provision, taxable income of builders and developers is calculated at 10% of gross receipts from construction and sale activities regardless of actual income earned.
The chamber argued that removing Section 7F would encourage investment, strengthen documentation of the construction industry and support growth in allied sectors including cement, steel, transport and labor.
The FPCCI said reforms in the property taxation regime could help revive economic activity and restore investor confidence in Pakistan’s real estate and construction sectors.