ISLAMABAD: Negotiations between Pakistan and the International Monetary Fund (IMF) over proposed tax relief measures for the real estate sector remain unresolved, with both sides yet to reach a final agreement ahead of the Federal Budget 2026-27.
According to sources familiar with the discussions, the government is seeking significant reductions in taxes on property transactions to revive the struggling real estate market, while the IMF has expressed concerns over the potential impact of such measures on revenue collection.
As part of its budget proposals, the government has suggested lowering the withholding tax on the purchase of immovable property by tax filers from 1.5 percent to 0.25 percent. It has also proposed reducing the withholding tax on the sale of property by filers from 4.5 percent to 1.5 percent.
However, the IMF has reportedly not agreed to the proposed cuts, citing concerns that lower tax rates could reduce government revenues at a time when Pakistan is working to meet fiscal targets under its economic reform program.
The real estate sector has remained under pressure in recent years due to high transaction costs, rising construction expenses, elevated financing costs, and overall economic uncertainty. Market participants have repeatedly called for tax reforms to encourage investment and improve liquidity in the property market.
Government officials believe that reducing transaction taxes could stimulate economic activity, boost investment in the construction sector, and attract more funds into the documented real estate market. Policymakers also argue that lower taxes may encourage overseas Pakistanis to invest in domestic property projects, supporting economic growth and foreign exchange inflows.
The property sector plays a vital role in Pakistan’s economy and supports numerous allied industries, including cement, steel, paint, ceramics, transport, and construction services. A slowdown in real estate activity has therefore affected a wide range of businesses linked to the sector.
The Federal Board of Revenue (FBR) recently informed the National Assembly Standing Committee on Finance that it was engaged in intensive discussions with the IMF regarding a reduction in tax rates under Sections 236C and 236K of the Income Tax Ordinance, which govern taxation on property transactions.
Members of the committee also discussed the potential of tax incentives to attract investment from overseas Pakistanis, particularly amid changing economic conditions and uncertainty in regional markets.
While Pakistan has reportedly secured IMF approval on certain budget-related proposals, including the withdrawal of planned tax increases on solar equipment and stationery items, the proposed real estate tax relief package remains one of the key unresolved issues in the ongoing budget negotiations.
