The International Monetary Fund (IMF) has reportedly agreed in principle to a significant reduction in the withholding tax (WHT) on property purchases in Pakistan.1 According to a report by The News, this cut amounts to 2% and is expected to take effect starting in April 2025.2 This decision comes in response to a request from the Federal Board of Revenue (FBR) aimed at lowering transaction costs within the country’s real estate sector.3
Tax Rates on Property Sellers Remain Unchanged
While the IMF has consented to a reduction in the WHT for property buyers, the report indicates that the tax rates applicable to property sellers will remain unchanged. The FBR had initially proposed reductions in tax rates for both buyers and sellers under Sections 236C and 236K of the Income Tax Ordinance.4 However, the IMF’s approval has been limited to the tax relief for purchasers only. The current WHT rates for property buyers in Pakistan range between 3% and 4%, depending on the assessed value of the property.5
FBR’s March Target Reduced by Rs60bn Due to Eid Holidays
In a separate development, the IMF has also approved a downward revision of the FBR’s tax collection target for March 2025.6 The target has been reduced by a substantial Rs60 billion, bringing it down from the initial Rs1,220 billion to Rs1,160 billion. This adjustment has been made to account for the reduced number of working days in March due to the Eid ul-Fitr holidays, which are expected to impact tax collection activities.
IMF Approves FED Reduction for Buyers
Adding to the concessions for property buyers, the IMF has also reportedly agreed to a reduction in the Federal Excise Duty (FED) applicable to them. The higher slab of FED on property buyers is set to decrease from 10% to 9%.7 However, similar to the WHT, the FED on property sellers will remain at its current levels.8 This reduction in FED is another measure aimed at easing the financial burden on those looking to purchase property in Pakistan.
Rationale Behind Tax Adjustments
The FBR presented compelling data to the IMF to support its request for tax relief in the real estate sector.9 The argument put forth was that the prevailing high transaction costs were acting as a deterrent to investment and were limiting overall activity within the real estate market.10 The FBR informed the IMF that by easing the tax burden on potential buyers, it could help stimulate the sector, which has reportedly witnessed capital flight due to the high levels of taxation. The IMF seemingly acknowledged the validity of these concerns, leading to the approval of the tax reductions for buyers.
Revised Tax Collection Targets
Following the reduction in the March 2025 target, the IMF has also revised the FBR’s full-year tax collection target. The original target of Rs12,970 billion has been adjusted to a new range of Rs12,332 billion to Rs12,334 billion. This revision reflects the Rs60 billion shortfall expected in March. To compensate for this reduction in March, the IMF has reportedly urged the FBR to enhance its tax collection efforts in the months of April and May to ensure that the new annual target remains achievable.11
Government Plan to Address Circular Debt
In addition to the tax-related discussions, the IMF has also given its approval to the Pakistani government’s plan to raise Rs1,257 billion through banks.12 The primary objective of this financial maneuver is to help address the growing issue of circular debt within the power sector. This approval signifies the IMF’s support for the government’s efforts to tackle the persistent energy sector challenges.
Expected Staff-Level Agreement
These concessions and agreements were reportedly reached during a virtual meeting held between Pakistani authorities and the IMF on Friday night.13 The meeting is considered to have made significant progress towards finalizing the crucial Memorandum of Economic and Financial Policies (MEFP).14 Sources suggest that a staff-level agreement between Pakistan and the IMF is expected to be reached as early as next week, paving the way for the next tranche of funding under the current program.
