IMF Approves 2% Cut in Withholding Tax on Property Buyers
In a significant breakthrough for Pakistan’s real estate market, the International Monetary Fund (IMF) has agreed in principle to reduce the withholding tax (WHT) on property acquisitions by 2% beginning April 2025. However, the tax rates for property sellers will not alter.
The decision comes after the Federal Board of Revenue (FBR) requested that the IMF grant relief to reduce transaction costs and encourage real estate market growth. This relief is part of a larger set of virtual negotiations between Pakistani authorities and IMF officials on Friday night, during which significant progress was achieved toward concluding the Memorandum of Economic and Financial Policies (MEFP). The staff-level agreement is expected next week.
Currently, the WHT on property buyers ranges between 3% and 4%, depending on the value of the property. The new deal will reduce these charges by 2%, seeking to make property transactions more affordable for buyers. The FBR first recommended tax cuts under Sections 236C and 236K of the Income Tax Ordinance for both sellers and purchasers, but the IMF only allowed decreases for buyers.
Additionally, the IMF has agreed to a cut in the Federal Excise Duty (FED) on property purchases. The higher FED slab will be reduced from 10% to 9%, but the duty on sellers will remain constant.
The FBR backed its proposal with data showing that elevated transaction costs were deterring investment and contributing to capital flight in the real estate sector. The IMF acknowledged that lowering the tax burden on buyers could help rejuvenate real estate activity, encouraging investment and fostering economic growth.
In another concession, the IMF has agreed to reduce the FBR’s tax collection target for March 2025 by Rs60 billion, from Rs1,220 billion to Rs1,160 billion. This adjustment compensates for the decreased working days owing to the Eid ul-Fitr holidays. Similarly, the full-year tax collection target has been reduced from Rs12,970 billion to a new range of Rs12,332-12,334 billion.
However, to compensate for the March shortfall, the IMF has urged the FBR to raise tax collections in April and May, ensuring that the revised yearly target is met.
In a separate move to address Pakistan’s mounting circular debt in the power sector, the IMF has authorized the government’s intention to raise Rs1,257 billion via the banking system. The set of measures is viewed as a constructive move toward economic stability, providing relief to home buyers while maintaining fiscal restraint.
