Taxpayers involved in the real estate sector and those importing raw materials may see a reduction in their tax burden come July 1, 2025, as the government reportedly plans to rationalize Capital Gains Tax (CGT) and Withholding Tax (WHT) rates in the upcoming fiscal year 2025-26 budget.
According to sources, the federal budget for FY26 is expected to include measures aimed at facilitating both buyers and sellers within the real estate market. Concurrently, there are proposals to reduce withholding tax rates on the import of raw materials and inputs.
Proposed Changes for the Real Estate Sector
Significant changes are being considered for the property sector. Reports suggest the potential abolition of Federal Excise Duty on immovable properties in the FY26 budget. Furthermore, a reduction in the withholding tax currently applicable on the buying and selling of immovable properties is anticipated. Currently, a 3 percent withholding tax is levied on sellers under section 236C of the Income Tax Ordinance 2001.
The Capital Gains Tax (CGT) on immovable properties is also slated for revision from July 1, 2025. Sources indicate that the CGT, which is paid by the seller at the time of filing their income tax return under section 37 of the Income Tax Ordinance 2001, will be rationalized to better reflect prevailing inflation rates and property costs.
Beyond the real estate sector, the budget proposals reportedly include a general policy to reduce withholding tax rates across various financial transactions. Exceptions are expected for withholding taxes directly linked to income earned, such as WHT on dividends. The broader aim is to lower the incidence of withholding taxes across the board in the forthcoming fiscal year.
Housing Sector Task Force Recommendations
In a related development, a Task Force established for the development of the housing sector has put forth several recommendations to the government. These include calling for the abolition of section 7E of the Income Tax Ordinance and the Capital Value Tax (CVT) in Islamabad.
Key recommendations from the Task Force also involve reducing transaction taxes on the buying and selling of immovable properties. They propose waiving sub-section 2A of 236C, which pertains to the declaration and Commissioner’s approval regarding section 7E. The Task Force also suggests providing basic exemptions for properties valued up to Rs 10 million, shifting non-resident verification to an online NADRA system, and implementing a uniform WHT rate for filers and late filers to eliminate disparities.
Other notable recommendations include standardizing and rationalizing stamp duty rates across provinces and the ICT, ensuring uniform taxation policies through a National Tax Council, and waiving wealth reconciliation requirements for investments in real estate and construction up to Rs. 50 million. The Task Force has also recommended revising property valuations every three years to align with market prices and introducing transaction tax exemptions for specific categories like low-cost housing, government plots, and first-time homebuyers.
These potential tax adjustments are expected to be officially unveiled when the government presents its budget for the fiscal year 2025-26.
