KARACHI: Pakistan government is considering reducing withholding taxes on property transactions.
Under Sections 236C and 236K of the Income Tax Ordinance, the tax on the sale of plots could be cut from 4.5 percent to 1.5 percent, while the tax on purchases may drop from 1.5 percent to just 0.25 percent, an official said.
Last year, the government raised the sales tax from 3 percent but halved the purchase tax, keeping the overall burden at 6 percent per transaction.
As per reports, the upcoming federal budget is expected to bring major relief for the real estate and construction sectors, with several concessions under consideration to boost investment and economic activity.
Officials say the government is preparing special measures to attract foreign investors and overseas Pakistanis, aiming to expand housing projects and create new jobs.
One of the key proposals is a self-declaration regime for overseas investors, designed to make it easier for them to channel funds into property and construction.
With the right policies, Pakistan could attract investors who are currently putting money into real estate markets in the Gulf and other countries.
To encourage home ownership, there is also a proposal to abolish transaction taxes on the first purchase of a house or plot up to one kanal. Another suggestion is to treat housing loan instalments as expenses rather than income, reducing the tax load on borrowers.
If international lenders such as the IMF object to lowering tax rates, the government may instead reduce property valuation benchmarks. To simplify the system, a plan is being discussed to introduce uniform valuations across districts and the Federal Board of Revenue.
Recent court rulings have already provided relief to property owners. The Federal Constitutional Court declared Section 7E unconstitutional, striking down a tax on deemed income from additional properties that were not generating rental income. The Lahore High Court also ruled that super tax cannot be applied to the sale of ancestral property held for more than six years.
Builders and developers say, if approved, these measures could reshape Pakistan’s real estate landscape, making property investment more attractive and accessible.
It may be mentioned here the tax relief in the real estate sector doesn’t automatically translate into cheaper homes for buyers. In fact, the opposite often happens.
When the government reduces taxes on property transactions, it makes the sector more attractive to investors. This influx of investment increases demand for plots and housing units, which in turn pushes prices upward. So, while developers and investors benefit from lower costs, ordinary homebuyers may find themselves facing higher property values.
This dynamic is common in markets where tax concessions are introduced. Instead of lowering the entry price for families looking to buy their first home, the relief tends to fuel speculation and investment-driven demand.
