• IMF agrees to slashing FED on property purchasers.
• Approves request to lower tax collection target for March.
• Pakistan waiting for written response to finalise proposal.

ISLAMABAD: Amid ongoing talks between the government the International Monetary Fund (IMF), the latter has agreed in principle to grant partial relaxations to the Federal Board of Revenue’s (FBR) request to reduce the Withholding Tax (WHT) rates on property purchases by 2%. The news was reported on Saturday.

The reduction in property purchase tax will be effective from April 2025. However, the withholding tax rates on property sellers will remain unchanged.

“In a major and long-awaited development for the real estate and construction sector, the government has convinced the IMF to reduce the WHT rates for purchasers by 2%,” confirmed top official sources while speaking to the publication.

The development is to be taken in the context of Association of Builders and Developers of Pakistan (Abad) Chairman Hassan Bakhshi’s complaint of real estate sector facing pressure in Sindh and Punjab due to developers and housing societies being subjected to double taxation during property registration at the initial allotment stage.

The taxation dispute has resulted in a deadlock in issuing numerous property registries across Punjab. The impasse stems from provincial tax authorities’ interpretation of Section 236C of the Income Tax Ordinance, 2001, which they argue applies to housing societies and developers, creating uncertainty and delays in property transactions.

As per Bakhshi, the Board of Revenue (BOR), Punjab, and the Punjab Land Revenue Authority (PLRA) have taken the stance that Section 236C of the Ordinance applies to allotment registries as well. 

As a result, housing societies were being required to pay withholding tax under this provision. “This has exposed the real estate sector to double taxation,” he said.

Furthermore, the Washington-based lender has also agreed to reduce the Federal Excise Duty (FED) on property purchasers, while the duty on sellers will remain intact, and has also approved the FBR’s request to lower the tax collection target for March 2025 by Rs60 billion, considering the increased number of holidays due to the upcoming Eid ul Fitr.

On the issue of reducing taxes on property, the FBR had requested the IMF to lower WHT rates for both sellers and purchasers under Sections 236C and 236K, respectively. However, the Fund agreed to reduce the WHT rates for purchasers.

The WHT rates for purchasers currently range from 3% to 4%, depending on the slab. For the FED, the higher slab of 10% has been reduced to 9% for purchasers.

The FBR presented data to the IMF, demonstrating the need to reduce transaction costs for property purchasers, who invest significant amounts and face a heavy tax burden. It was argued that lowering tax rates for purchasers would increase transactions in the real estate sector.

It is to be noted that Islamabad and IMF officials held a virtual meeting on Friday night, during which Pakistani authorities expressed confidence that the discussions would help finalise the Memorandum of Economic and Financial Policies (MEFP) and pave the way for a Staff Level Agreement (SLA) soon. It is expected that this was likely the last meeting, and the IMF may strike the SLA next week.

The consultations between the FBR and property sector representatives have highlighted that high tax burdens were causing capital flight from the country.

After extensive discussions, the IMF agreed to reduce tax rates for purchasers but declined to provide relief to sellers at present.

Pakistani authorities are awaiting the IMF’s written response, after which the proposal would be finalised and presented to the government for approval.

Regarding the tax collection target, the IMF has agreed to revise the FBR’s target downward from Rs12,970 billion to Rs12,332-12,334 billion for the current fiscal year. For March 2025, the FBR’’ tax collection target was set at Rs1,220 billion.

However, the FBR requested a reduction of Rs70 billion for March 2025, citing increased holidays due to Eid ul-Fitr. The IMF has agreed to this reduction but has asked the FBR to increase tax collections in April and May 2025 to meet the revised target of Rs12,334 billion by the end of June 2025.