Tax Incentive Plan Put on Hold
Prime Minister Shehbaz Sharif has postponed a decision on a proposed tax relief package for the real estate sector as key issues remain unresolved. The Federal Board of Revenue (FBR) has raised concerns over certain exemptions, particularly those conflicting with International Monetary Fund (IMF) guidelines.
FBR Opposes Tax Amnesty for First-Time Buyers
A key element of the proposal was to grant first-time buyers of homes, shops, or offices an amnesty of up to Pak Rs. 50 million. However, the FBR has rejected this, with Chairman Rashid Langrial warning that it would be considered a tax amnesty, which the IMF has explicitly banned. Given Pakistan’s ongoing commitments under its IMF program, the government risks losing financial support if such exemptions are approved.
Proposed Tax Reductions Face Scrutiny
During a meeting of the housing sector task force, officials reviewed additional measures, including reducing property transaction taxes and abolishing the 3 percent federal excise duty (FED) on real estate transactions. While the FBR chairman supported eliminating the FED, some task force members expressed concerns that broad tax cuts could fuel speculative investments, driving up property prices and making housing less affordable for genuine buyers.
Interest Rate Subsidies Under Consideration
To support lower and middle-income groups, the government is also considering offering interest rate subsidies on home loans. High borrowing costs remain a significant barrier to homeownership, and targeted subsidies could help improve access to financing. However, the effectiveness of this measure depends on its implementation and whether banks are willing to participate in the program.
Regulatory Challenges in the Real Estate Sector
Despite its importance to the economy, Pakistan’s real estate sector remains largely unregulated. The widespread conversion of agricultural land into housing societies—many of which operate without proper approvals—has led to an oversupply of plots and concerns about fraudulent property transactions. Critics argue that without stronger oversight, tax incentives could end up benefiting developers and speculative investors rather than addressing housing affordability for ordinary citizens.
Government Weighs Next Steps
With competing priorities of economic stimulus, regulatory oversight, and IMF obligations, the government is treading cautiously. Further consultations with policymakers, regulatory bodies, and industry stakeholders are expected before a final decision is made on the real estate tax package.
