Karachi, September 11, 2024 – The Medium Taxpayers Office (MTO) Karachi has called upon members of the Association of Builders and Developers (ABAD) to comply with the newly implemented Federal Excise Duty (FED) on immovable properties.
In a formal communication sent to ABAD, the MTO Karachi emphasized the importance of adherence to the recently introduced taxation rules concerning property transactions.
According to the MTO Karachi, the FED has been imposed on the allotment and transfer of property, effective from July 1, 2024. The duty applies to both commercial properties and residential plots, with varying rates depending on the tax status of the buyer at the time of property acquisition. The office clarified that the duty will be levied in accordance with the following categories:
1. For buyers listed as active taxpayers under Section 181A of the Income Tax Ordinance, 2001, the FED will be charged at 3% of the gross amount of the consideration involved.
2. For buyers who have not filed their income tax returns by the due date, as specified in the Tenth Schedule of the Income Tax Ordinance, the FED will increase to 5% of the gross amount.
3. For buyers not listed on the active taxpayers list at the time of the property acquisition, the FED will be imposed at 7% of the gross amount of consideration.
The MTO Karachi stressed that these rates are applicable to the allotment or transfer of commercial properties as well as the first allotment or first transfer of open plots and residential properties by any developer or builder. The tax authority also highlighted that the Federal Board of Revenue (FBR) would prescribe additional conditions and restrictions, which developers and builders would need to follow.
The introduction of this duty is seen as part of a broader effort by the government to boost revenue and enforce tax compliance in the real estate sector. The real estate industry has traditionally been a significant contributor to Pakistan’s economy, but it has also been identified as an area where tax evasion is prevalent.
MTO Karachi urged ABAD to ensure that its members comply with the new regulations, particularly regarding the collection and deposition of the FED on the same day as the transaction. The timely payment of the duty, the tax office noted, would help streamline tax collection and enhance transparency within the sector.
The communication from MTO Karachi comes at a time when the real estate industry is facing increasing scrutiny from tax authorities. The industry will now need to adjust to the new regime to avoid potential penalties and ensure smooth business operations in line with the government’s tax policies.
