ISLAMABAD:
Prime Minister Shehbaz Sharif has postponed the decision on a tax incentive package aimed at revitalizing the real estate sector. The unresolved matters include providing subsidies to stimulate construction activity and granting amnesty for undisclosed income sources.
Tax authorities have once again rejected a proposal from a businessman to introduce a Rs50 million amnesty for first-time buyers of homes, shops, or offices. Their opposition stems from the International Monetary Fund’s (IMF) persistent ban on such amnesty schemes.
On Friday, the housing sector task force met with Prime Minister Shehbaz Sharif and presented recommendations for reducing property transaction taxes and eliminating the federal excise duty, according to government sources. Even taxpayers registered as filers are required to pay around 8% of the property’s value in taxes upon purchase.
While there was a general agreement on reducing taxes, key issues remain unresolved, sources revealed.
The Chairman of the Federal Board of Revenue (FBR) supported the proposal to abolish the 3% federal excise duty, calling it an “unjustified” levy that has been widely contested by taxpayers and challenged in courts. The FBR currently imposes this duty on previously constructed homes that have been resold multiple times, which exceeds legal provisions.
Prime Minister Shehbaz Sharif assigned Minister for Economic Affairs Ahad Khan Cheema the responsibility of refining the package and engaging with the IMF regarding the proposal.
During the meeting, discussions centered on reducing taxes on property transactions, abolishing federal excise duty, providing interest rate subsidies for home construction loans, and determining whether first-time buyers should be granted a Rs50 million amnesty for undisclosed income.
However, some task force members raised concerns that such incentives might lead to excessive capital inflow into the real estate sector, fueling speculative investment rather than genuine housing development.
Leading businessman Arif Habib proposed that first-time homebuyers should not be required to disclose the source of funds up to Rs50 million. However, FBR Chairman Rashid Langrial opposed the idea, arguing that it would effectively constitute a tax amnesty, which the IMF disapproves of.
Habib elaborated that Pakistan’s large informal, cash-based economy discourages corporate firms and banks from launching significant construction projects. He contended that his proposal was not strictly an amnesty since it was limited to first-time genuine buyers.
Due to the informal economy’s size, many property transactions are either undervalued or conducted in cash to avoid scrutiny.
The prime minister directed government officials to work with Arif Habib to explore a viable solution. It was also decided that business leaders would engage with the IMF next month to discuss the proposed Rs50 million amnesty scheme.
“It appears that there is a consensus on providing relief to the real estate sector,” FBR Chairman Rashid Langrial stated in a recent National Assembly Standing Committee on Finance meeting, which had earlier postponed a legal amendment requiring buyers to disclose their funding sources upfront.
The prime minister had set up the housing sector task force after real estate activities slowed due to high taxation and sluggish economic growth. In the first quarter of the current fiscal year, Pakistan’s economy expanded by only 0.9%.
Prime Minister Shehbaz Sharif emphasized that the real estate sector package should primarily focus on fostering construction and economic activity.
The meeting also explored the possibility of offering interest rate subsidies to assist lower and middle-income groups in obtaining bank loans for home construction. The Minister for Economic Affairs has been tasked with presenting recommendations next week.
A similar initiative was introduced by former Prime Minister Imran Khan, who provided interest-rate subsidies for lower middle-income groups, enabling many individuals to own homes. Despite the central bank’s policy rate being set at 12%, home loan interest rates remain high, exceeding 17%.
As of now, the prime minister has not introduced any measures to ease the financial burden on salaried individuals, who paid Rs285 billion in income tax between July and January of this fiscal year—Rs100 billion more than the previous year and significantly exceeding the government’s annual target for additional tax collection from this segment.
This week, the National Assembly Standing Committee on Finance deferred the approval of an amendment bill that would have mandated upfront disclosure of property purchase funds. The delay in passing the Tax Laws Amendment Bill has provided temporary relief to the real estate sector, allowing transactions to proceed without immediate disclosure requirements.
A government official clarified that no final relief package for the real estate sector has been approved, and consultations with provincial authorities and the IMF have yet to begin.
The real estate sector remains largely unregulated, with vast agricultural lands being converted into housing schemes—many of which lack regulatory approvals and operate illegally. Additionally, the market has an oversupply of plots compared to actual demand due to excessively high prices.
Another challenge is the overselling of apartments and plots. A potential solution discussed in the meeting was to regulate construction investments through escrow accounts, ensuring greater transparency and accountability.
