Immovable property: Govt urged to rationalise ‘prohibitive’ federal taxes

LAHORE: Former regional chief of Federation of Pakistan Chambers of Commerce and Industry (FPCCI) Dr Muhammad Arshad has urged the government to rationalise prohibitive federal taxes on immovable property, as well as digitise property tax payments to boost economic growth by unlocking the untapped potential of real estate and construction industry.

While talking to Business Recorder, he said that the state must collect taxes from all segments of the economy, the manner in which different indirect, exorbitant taxes have been implemented in the real estate sector has raised many questions around their negative impacts on the construction industry, property transactions, and the effectiveness of these levies in meeting the government’s revenue targets,“ he said.

He notes that the unsustainable tax burden on the real estate transactions was not the only concern. “The widespread inefficiencies in property tax collection and property transfer mechanisms are other areas affecting the development of residential, commercial and industrial real estate markets.”

He pointed out that the changes announced in the federal property tax regime in the present budget with the aim to document the economy and increase the tax base are of particular concern because of their implications for the real estate sectors and construction industry, a major driver of economic growth.“

The new tax regime, which has seen the tax rates increased significantly for both sellers and buyers — especially for the tax non-filers, has triggered a major slowdown in the property market.

It is not only discouraging transactions but has also led to a decline in property prices and shift in the market behaviour, with people preferring to deal only with tax filers to minimize tax liabilities, impacting the market activity.

The property transactions are subject to four federal taxes — Capital Gain Tax (CGT), Advance Withholding Property Tax, Capital Value Tax (CVT) and Federal Excise Duty (FED). In the budget 2024-25, the government increased the rates based on an individual’s

tax status: filers, non-filer, or late-filer, and implemented a few other changes.

CGT on the profit earned from selling immovable property is now taxed at the rate of 15pc-45pc regardless of the holding period or property type.

Similarly, CVT charged on the transfer of immovable properties (land, houses, and buildings) and is usually borne by the buyer at a rate of 2pc of the property value (fixed under the Federal Act 2006).

FED is levied during the booking, allotment, or transfer of property at the rate of 5pc on commercial properties, and residential properties on the first owner at the time of booking.

“Then, we have the advance property tax collected as a withholding tax on the sale/transfer of a property from both the sellers and buyers of residential and commercial properties.

The rates vary from 3pc to 10pc, depending upon the value of the property and the category of seller/buyer as tax filer, late filer and non-filer. Similarly, the advance tax on the purchase of an immovable property ranges between 3pc and 20pc,“ Dr Arshad said.

He also stressed the need to do away with inefficiencies and corruption in property transactions and tax collection. “Automation of property transactions and tax payment records to reduce paperwork and human intervention would ensure transparency, efficiency, and business-friendliness besides encouraging greater tax compliance and building public trust,” he added.

He said DHAs have already evolved a hassle-free solution for property transfer, simplifying transactions and transfers through well-organized digitized records and minimal bureaucratic red tape.

“By adopting a similar mechanism nationwide, the government can streamline property transfers to make them faster, reliable, and less cumbersome for both buyers and sellers by eliminating opportunities for corruption,” he suggested.

There are no two opinions that the existing property tax structure and outdated collection methods are major barriers to growth of the real estate sector, collection of tax revenues, and realisation of the construction industry’s potential as one of the largest contributors to economic expansion, he stated.

He argued that the government must consider reducing taxes on transfer of property to reasonable levels and automate the tax collection/payment procedures.

“These actions could significantly boost the government revenues by encouraging more transactions since higher tax rates discourage property transactions and lead to underreporting or evasion.

Lower taxes will also stimulate activity in this critical sector and documentation of a larger number of transactions and broadening of the tax base,“ he concluded.

Copyright Business Recorder, 2025