ByThe Federal Board of Revenue (FBR) is considering significant tax reforms to support first-time homebuyers and encourage affordable housing development. These proposed measures include reducing withholding taxes on property transactions and reassessing the 5% Federal Excise Duty (FED) on property dealings. The decision comes in response to concerns raised by stakeholders in the real estate sector regarding the financial barriers posed by high transaction taxes.
During a meeting of the Taxation Working Group of the Task Force for Housing Sector Development, chaired by FBR Chairman Rashid Mahmood, the issues of heavy taxation under Sections 236C and 236K of the Income Tax Ordinance were discussed. These sections currently impose a cumulative tax burden of 13% per transaction, comprising 4% withholding tax, 5% FED, and 4% provincial stamp duty. Stakeholders argued that such high taxes are detrimental to the real estate market and hinder first-time homebuyers’ ability to enter the market.
The FBR chairman expressed a willingness to rationalize these taxes but emphasized the importance of cooperation from provincial governments in maintaining real estate tax levels. Additionally, he outlined plans to streamline verification processes for non-resident buyers by implementing an online system in collaboration with NADRA, thereby reducing reliance on field offices for documentation. However, the chairman maintained a strict position against granting tax concessions to non-filers, ensuring compliance remains a priority.
To address these issues comprehensively, the FBR has established a committee led by its Member (Policy), which includes representatives from the real estate and housing sectors. The committee has been tasked with proposing tax reforms, particularly for low-cost housing initiatives, and aligning property valuation rates with actual market values. It will conduct annual reviews and design a robust valuation mechanism in collaboration with Inland Revenue Operations.
The meeting also highlighted concerns regarding income tax on deemed income under Section 7E, which affects idle and undeveloped plots. These taxes have raised significant apprehensions among stakeholders, as they disproportionately impact property owners who may not have immediate development plans. The FBR chairman agreed to examine these issues and address inconsistencies in the tax structure.
Real estate professionals have expressed cautious optimism regarding the potential reforms and the incentive package expected to be finalized by February 2025. They believe these measures could provide much-needed relief to the sector, stimulate property transactions, and facilitate affordable housing schemes, ultimately benefiting both buyers and the broader real estate market.
