Federal Board of Revenue (FBR) Plans Tax Relief for First-Time Property Buyers

In efforts to reshape Pakistan’s real estate landscape, the Federal Board of Revenue (FBR) is weighing significant tax reforms aimed at first-time homebuyers. Withholding taxes and the 5% Federal Excise Duty (FED) on property transactions are under review as part of a broader effort to promote affordable housing and invigorate the housing market.

The initiative, discussed at a meeting of the Taxation Working Group of the Task Force for Housing Sector Development, reflects growing momentum to reduce financial barriers in property transactions. FBR Chairman Rashid Mahmood affirmed the board’s commitment to reform. “We recognize the need to rationalize transaction taxes, but achieving this will require cooperation from provincial authorities to maintain balanced tax levels,” Mahmood noted.

Currently, property transactions are taxed at a steep 13%, combining a 4% withholding tax, 5% FED, and 4% provincial stamp duty under Sections 236C and 236K of the Income Tax Ordinance. Real estate stakeholders have long called for a reassessment of these rates, citing their deterrent effect on market growth.

To address these concerns, the FBR has established a committee led by its Member (Policy) and including representatives from the housing and real estate sectors. The committee is tasked with aligning property valuation rates with market realities, implementing annual reviews, and creating a transparent valuation framework in collaboration with Inland Revenue Operations.

The meeting also explored solutions to streamline the verification process for non-residents. Mahmood stressed the importance of leveraging technology, stating, “An online system, developed in collaboration with NADRA, will reduce dependence on field offices and improve efficiency.” However, he reiterated that concessions for non-filers remain off the table, reinforcing the FBR’s strict stance on compliance.

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The discussion also delved into the income tax on deemed income under Section 7E, a measure that has drawn criticism for disproportionately affecting undeveloped and idle plots. Mahmood assured participants that the FBR would address design inconsistencies to ensure fair implementation.

Realtors and industry stakeholders expressed cautious optimism about the potential reforms, which are expected to culminate in an incentive package by February 2025. “This could be a game-changer for the housing sector, offering a lifeline to first-time buyers and encouraging investment in affordable housing projects,” one participant remarked.

As the FBR takes steps to align taxation with market needs, the proposed reforms signal a potential shift in the accessibility of homeownership, marking a step forward for Pakistan’s housing sector.