Pakistan Removes Excise Duty on Property: A Game-Changer for Overseas Investor

Real Estate Sector in Pakistan Gets Boost with Expected Removal of FED

The Pakistan real estate market is on the brink of a major policy shift. The Federal Board of Revenue (FBR) has submitted a summary to the federal cabinet proposing the removal of the Federal Excise Duty (FED) on property transactions. This key move is set to reduce property transaction costs, stimulate real estate activity, and attract local and foreign real estate investors.

Understanding the Background: Real Estate Taxation in Pakistan

Introduced in the Finance Act 2024, the Federal Excise Duty on property was implemented as follows:

• 3% on tax filers
• 5% on late filers
• 7% on non-filers
  
  

While aimed at increasing real estate tax collection, the FED instead acted as a deterrent to property transactions, leading to a noticeable slowdown in the Pakistan property market.

Green Signal from Prime Minister and IMF

According to FBR Chairman Rashid Langrial, Prime Minister Shehbaz Sharif has already approved the proposal to eliminate FED. Additionally, the International Monetary Fund (IMF) has not raised any objections, clearing a significant hurdle in Pakistan’s tax policy reform.

Once approved by the federal cabinet, an official notification on FED withdrawal is expected shortly. This decision comes as the FED is already under legal scrutiny in courts, challenged for its impact on the real estate sector.

Positive Impact on Pakistan’s Real Estate Sector

Here’s what the removal of FED could mean:

• Lower cost of buying property in Pakistan.
• More affordable real estate transactions for genuine homebuyers and property investors.
• Increased property sales and purchase volume, especially in urban markets like Lahore, Karachi, Islamabad, and Rawalpindi.
• Greater transparency and investor confidence, both local and overseas.
• Boost in real estate market growth, construction activity, and job creation.
  
  
  

Existing Real Estate Taxes in Pakistan

Even without FED, property transactions in Pakistan are still subject to several other taxes:

• Capital Gains Tax (CGT) – Applied on profit from property sales, with higher rates for non-filers.
• Capital Value Tax (CVT) – A levy based on the fair market value of real estate.
• Advance Tax (Sections 236C and 236K) – Collected at the time of sale and purchase, with higher rates for non-tax filers.
• Deemed Rental Income Tax (Section 7E) – Applies to properties valued over Rs 25 million, taxed at 20% on assumed rental income.
• Urban Immovable Property Tax (UIPT) –Imposed by local governments.

Despite these existing levies, the withdrawal of the Federal Excise Duty on property transactions is seen as a major relief for the real estate and construction sectors.

No Immediate Changes in Property Valuation Tables

There will be no revisions to the property valuation tables during the current fiscal year, offering a period of consistency and predictability for both investors and buyers. Any updates or adjustments to these valuations are expected to be considered in the upcoming Federal Budget 2025–26.

A Promising Outlook for Real Estate Investment in Pakistan

With this upcoming policy change, Pakistan’s real estate industry is set for a revival. Lower tax burdens on real estate transactions will encourage more individuals to buy property in Pakistan, leading to stabilised property values and increased demand across residential, commercial, and industrial segments.

Why This Matters for Foreign Investors

The removal of the Federal Excise Duty lowers entry costs and boosts returns—making Pakistan’s real estate market more attractive to overseas investors. With fewer tax hurdles and consistent property valuations, this policy shift signals a more investor-friendly environment. For those looking to diversify into high-growth emerging markets, now is a compelling time to invest in Pakistan’s property sector.