In a significant development for Pakistan’s real estate and construction sector, the International Monetary Fund (IMF) has agreed to grant partial relaxations to the Federal Board of Revenue (FBR) regarding tax rates on property transactions. Starting from April 2025, the withholding tax (WHT) rates for property buyers will be reduced by two percent, though the rates for property sellers will remain unchanged. Additionally, the IMF has approved a reduction in the Federal Excise Duty (FED) for property purchasers, while the duty on sellers stays intact.
The IMF’s approval also includes a revision of Pakistan’s tax collection targets, lowering the FBR’s goal for March 2025 by Rs60 billion. This adjustment takes into account the increased number of public holidays due to Eid ul-Fitr. Furthermore, the IMF has given the green light to Pakistan’s proposal to raise Rs1,257 billion from banks to address the growing circular debt crisis in the country’s power sector.
A major breakthrough for Pakistan’s property sector, the IMF’s decision to reduce WHT rates for buyers is seen as a long-awaited move. According to sources, this reduction is expected to alleviate the heavy tax burden on property purchasers, which has been a barrier to real estate transactions and is believed to have caused significant capital flight.
The FBR had initially requested a broader reduction in WHT rates, including a decrease for property sellers as well. However, the IMF agreed only to cut the rates for buyers, as the FBR presented data demonstrating the need to ease tax burdens on those purchasing property, particularly to stimulate transactions in the struggling real estate market.
During a virtual meeting between Pakistani authorities and the IMF on Friday, both sides expressed optimism about finalizing the Memorandum of Economic and Financial Policies (MEFP). These discussions are expected to pave the way for a Staff-Level Agreement (SLA) between Pakistan and the IMF, which could be finalized as soon as next week.
Pakistan’s finance minister, Muhammad Aurangzeb, also expressed hope about the ongoing negotiations, stating that no major obstacles were hindering the talks. He added that the talks are nearing their final stages, with positive news expected soon. The resolution of these negotiations is crucial, as the country aims to meet the fiscal discipline targets agreed upon with the IMF to ensure continued economic stability.
The IMF’s relaxation of property taxes is a key part of the broader economic reforms being implemented by Pakistan. However, challenges remain, particularly in ensuring the effective enforcement of tax laws and reducing barriers to investment. The real estate sector is facing multiple issues, including high tax burdens, which discourage transactions and limit growth.
In related developments, Pakistan’s finance minister also addressed the country’s efforts to secure climate-related financing. During a meeting with US Ambassador Natalie Baker, he discussed Pakistan’s commitment to structural economic reforms, including measures to promote climate resilience. With ongoing support from the international community, including potential funding from the IMF and other partners, Pakistan is hopeful that its long-term economic stability will be strengthened through these reforms.
Additionally, the Lahore High Court’s recent ruling, which lifted a stay order on the windfall tax imposed on banks, resulted in a significant financial benefit for the national exchequer, adding Rs11.5 billion. This follows earlier recoveries totaling Rs23 billion, contributing to a larger goal of enhancing the country’s fiscal health.
Pakistan’s leaders, including Prime Minister Shehbaz Sharif, have emphasized the importance of these reforms in boosting the economy. With these significant steps, the government aims to increase tax collection and foster a stronger, self-sufficient economy. The relaxation of property taxes and the improvement in fiscal discipline could pave the way for a more resilient economy, positioning Pakistan to face future challenges more effectively.
