ISLAMABAD: In a significant policy reversal, the government has decided to abolish the 3% Federal Excise Duty (FED) on the first sale of all properties in Pakistan, effective from July. This marks a rollback of a widely criticized tax introduced nearly 10 months ago, which had severely impacted the real estate sector.
The decision was made in consultation with the International Monetary Fund (IMF), a senior Federal Board of Revenue (FBR) official said. The move comes ahead of the IMF’s special budget mission scheduled to arrive in Pakistan on May 14 to review the fiscal year 2025–26 budget.
According to sources, both the 3% FED for tax filers and the 5% FED for non-filers on property allotments and transfers will be eliminated. The FBR has already initiated the legal process, having submitted a summary proposing the removal of the tax.
Dr. Najeeb Memon, FBR spokesperson, confirmed that the prime minister’s housing task force had recommended the abolition of the FED. He stated that relevant legislation to implement the decision will be introduced soon.
Revenue generated from the tax has been minimal so far in the current fiscal year, largely due to resistance from real estate authorities who argued that property taxation falls under provincial jurisdiction. Several taxpayers also challenged the duty in court on constitutional grounds.
Finance Minister Muhammad Aurangzeb has given his approval to proceed with the summary for eliminating the duty. The proposal will now be presented to the federal cabinet to amend the Federal Excise Duty Act, with the aim of completing the process within this month, pending legislative approvals.
IMF Resident Representative Mahir Binici did not comment on whether the IMF explicitly endorsed the removal of the 3% FED.
The excise duty, which applied to all first sales of residential and commercial properties after June 30, 2024, was part of additional tax measures introduced in the previous federal budget. It imposed rates of 3% for filers, 5% for late filers, and 7% for non-filers, collected at booking, allotment, or transfer.
Other tax measures introduced alongside included a Rs500,000 tax on farmhouses sized between 2,000 and 4,000 square yards and Rs1 million on those exceeding 4,000 square yards in Islamabad Capital Territory.
Residential homes between 1,000 and 2,000 square yards were taxed Rs1 million, while larger homes incurred a Rs1.5 million tax. Additionally, a 4% stamp duty was imposed on property transactions within the territory.
