Islamabad, February 9, 2025 – The government is unlikely to introduce any tax package for the real estate sector before the presentation of the budget for the fiscal year 2025-26.
This decision is influenced by pressures from various stakeholders and the upcoming visit of the International Monetary Fund (IMF) review mission, making the government hesitant to announce any tax incentives, particularly those related to the declaration of income sources for property transactions.
The real estate sector in Pakistan has long been a significant avenue for undocumented money, posing challenges to the tax collection system. Additionally, the sector’s high return potential has led to investment distortions, drawing funds away from other industries. Despite calls for reform, the government remains cautious about implementing any major policy changes ahead of the IMF discussions.
Stock Market Reactions and Formation of Task Force
Last week, speculation about potential incentives for the property sector led to a downturn in the Pakistan Stock Exchange (PSX), where the KSE-100 index dropped by approximately 4,000 points in the first three trading sessions. Investors feared that favorable real estate policies might divert capital away from the stock market.
To address concerns within the property and construction sectors, Prime Minister Shehbaz Sharif established a high-powered task force. Comprising representatives from the real estate industry, developers, and builders, the task force was mandated to propose tax law amendments that would attract investment in the real estate sector. The finalized recommendations have been submitted to the prime minister for approval.
Key Recommendations for the Real Estate Sector
Among the major proposals, the task force has suggested an amnesty for property transactions. Specifically, it recommends that buyers of properties valued up to Rs 50 million should not be required to disclose their income sources. Additionally, the task force has proposed the abolition of Section 7E of the Income Tax Ordinance, 2001, which imposes taxes on deemed property income. Removing this section aims to alleviate tax burdens and promote investment in real estate.
Another significant recommendation is the elimination of the Capital Value Tax (CVT) in Islamabad, with the objective of establishing uniform property taxation policies across Pakistan through the National Tax Council. A standardized tax framework would ensure fairness and consistency in property-related levies.
To streamline property transactions further, the task force has suggested standardizing and rationalizing stamp duty rates across all provinces and the Islamabad Capital Territory (ICT). This initiative would create a level playing field for property buyers and sellers nationwide.
Moreover, the task force has proposed waiving wealth reconciliation requirements for investments of up to Rs 50 million in the real estate and construction sectors. This measure is expected to encourage increased capital flow into the property market, stimulating economic growth.
A crucial aspect of the recommendations is the periodic revision of official property valuations every three years to reflect market trends accurately. Ensuring that official valuations align with actual market rates would minimize discrepancies and enhance transparency in real estate transactions.
Government’s Stance and IMF Considerations
Sources indicate that the government must secure IMF approval to comply with the Extended Fund Facility (EFF) program. Given the IMF’s strict stance against tax amnesties, obtaining a favorable response for real estate sector incentives may be challenging. However, the government intends to seek approval during the IMF’s next review mission in March 2025.
Even if the IMF grants approval, the legislative process and subsequent parliamentary discussions could delay implementation. With the annual budget scheduled for early June 2025, any tax relief package for the real estate sector is unlikely to be introduced before the next fiscal year’s budget.
The government remains committed to balancing economic growth with fiscal responsibility, ensuring that any future property tax reforms align with Pakistan’s broader economic objectives.