Islamabad, July 3, 2025 — Thinking about starting a new construction project in Islamabad this year? Whether you’re building a home, launching a commercial site, or developing an apartment complex, make sure you understand the latest construction tax rate before you break ground.
The Federal Board of Revenue (FBR) has officially notified the Islamabad Capital Territory (Tax on Services) Ordinance, 2001, updated for the 2025-26 tax year. And yes, it includes some critical updates for all construction-related services in the capital.
💸 The Standard Tax Rate: 15%
If you’re involved in any kind of construction service in Islamabad, the general rule is straightforward: a 15% sales tax applies. This flat rate covers most service providers — whether it’s for private developments, commercial construction, or contracted civil work.
But before you panic over cost estimates, here’s where things get interesting — and potentially budget-friendly.
✅ Exemptions You Should Know About
Not every project gets taxed the same. The FBR has laid out several categories where construction services are exempt from tax in Islamabad, and if your project fits into one of these, you might save big:
1. Smaller-Scale Projects
If the total value of your construction (excluding land cost) doesn’t exceed Rs. 50 million per year, you’re off the tax hook.
2. Developers and Promoters
If you’re already paying sales tax as a property developer or promoter, you’re exempt from paying again for construction services.
3. Government Work
Civil works for government departments — including Cantonment Boards — are not subject to this tax.
4. Exempt Entities
Projects like consular buildings, industrial zones, or other organizations that don’t pay income tax are also excluded.
5. Foreign Aid Projects
Any construction done under international tenders funded by foreign grants is exempt.
6. Residential Projects (Modest Size)
Building a house under 10,000 square feet or apartments under 20,000 square feet? You’re likely exempt too.
🏗 Why It Matters
If you’re in the early stages of designing a project in Islamabad, factoring in the construction tax can significantly impact your budget and profitability. Double-check your project’s scope — you may qualify for an exemption and avoid the 15% charge entirely.
For developers, architects, and private homeowners, the updated ordinance is a must-read. Knowing your tax obligations today can save you from penalties tomorrow.
So before you pour the foundation, make sure you’ve laid the groundwork with FBR’s tax rules in Islamabad.