In a significant policy reversal, the government of Pakistan has decided to abolish the 3% Federal Excise Duty (FED) imposed on the first sale of all properties, a move expected to revive the sluggish real estate sector and stimulate economic activity. The measure, introduced during the 2024 budget, will be officially scrapped following legal and legislative procedures.
The decision comes nearly 10 months after the controversial tax was first enforced, causing widespread discontent among property buyers, developers, and investors. The Federal Board of Revenue (FBR) has confirmed that a summary has been submitted to initiate the necessary legal changes to abolish the FED, with Finance Minister Muhammad Aurangzeb giving his approval.
Why the 3% FED Is Being Abolished
The 3% FED—originally applicable to filers, 5% to late filers, and 7% to non-filers—was imposed on the first sale or transfer of all types of immovable property in Pakistan. However, the tax faced criticism for overlapping with provincial jurisdiction, as immovable property is a provincial subject under the Constitution.
The low collection rate and reluctance of provincial real estate authorities to implement the FED rendered the tax largely ineffective. Stakeholders from the real estate and construction sectors, including members of the Prime Minister’s Task Force on Housing, have consistently advocated for its removal, citing its adverse effects on investment and housing development.
Consultation with the IMF
The abolition decision has been made in consultation with the International Monetary Fund (IMF). An IMF budget review mission is expected to arrive in Pakistan on May 14, ahead of the announcement of the 2025–26 federal budget, expected in early June.
While the IMF has yet to publicly endorse the decision, Pakistani authorities are optimistic that the move will be considered positively as it is expected to boost formal sector activity and broaden the tax base through alternative measures.
Legislative Path and Expected Timeline
The Federal Cabinet will soon review and approve amendments to the Federal Excise Duty Act, allowing the government to abolish the tax by the end of April 2025, subject to legislative approval. The removal will benefit all future transactions, including commercial properties and residential units, from July 1, 2025, onwards.
Additional Real Estate Tax Reforms Under Consideration
Apart from abolishing the 3% FED, the government is also reviewing several other reform proposals to streamline real estate taxation and boost investment in the housing sector:
- Abolition of the 10% income tax surcharge on annual incomes above Rs10 million (effective from July 2025)
- Removal of deemed rental income tax on properties
- Reversion to a slab-based capital gains tax system
- Standardization of stamp duties and rationalization of capital value tax across provinces
- Exemptions for low-cost housing and first-time buyers
- Three-year property valuation revisions to reflect market prices
- Lower input costs by reducing taxes on construction materials
These recommendations have been submitted by the PM’s Task Force on Housing and are expected to be part of a broader policy shift aimed at making real estate transactions more transparent, affordable, and investment-friendly.
Impact on the Market
According to real estate professionals, including members of the task force, abolishing the non-adjustable FED will provide much-needed relief to buyers and developers, especially as property prices and transaction costs remain high. While the real estate market has remained sluggish, FBR still collected Rs108 billion in withholding taxes on property deals in the first half of the current fiscal year—an 18% increase over last year—highlighting ongoing market potential.
Looking Ahead
The upcoming federal budget for FY2025–26 will provide clarity on the future of property-related taxes and the government’s broader economic strategy. As Pakistan prepares to host the IMF mission in May, fiscal measures that balance investor confidence with revenue generation will be crucial
