ISLAMABAD: Prime Minister Shehbaz Sharif has postponed a decision on a tax incentive package aimed at reviving Pakistan’s real estate sector, with crucial issues about subsidies for construction and amnesty on income disclosures still unresolved.
Once again, the tax authorities have raised objections to a proposal from a businessman that would offer a Rs50 million amnesty to first-time home, shop, or office buyers. This comes amid continued opposition from the International Monetary Fund (IMF) to granting such amnesties.
The housing sector task force met with the Prime Minister on Friday, presenting recommendations to reduce property transaction taxes and eliminate the federal excise duty. Government sources informed The Express Tribune that even taxpayers who file returns currently face taxes amounting to around 8% of a property’s value during purchase.
While there was broad agreement on reducing taxes, several pivotal issues remained undecided, according to the sources.
The Chairman of the Federal Board of Revenue (FBR) supported the proposal to scrap the 3% federal excise duty, emphasizing that it had already sparked disputes among taxpayers and been challenged in the courts. The FBR seeks to impose this duty on homes sold more than once, which it argues exceeds legal boundaries.
The Prime Minister has instructed Minister for Economic Affairs Ahad Khan Cheema to fine-tune the proposed package, with the added responsibility of consulting the IMF.
Discussions during the meeting touched upon whether to introduce a subsidy for interest rates to make loans more accessible for home construction, as well as whether to extend the Rs50 million amnesty for first-time buyers disclosing the source of their income.
Some members of the task force voiced concerns that such incentives could encourage speculative investments in real estate. Business tycoon Arif Habib suggested exempting first-time buyers from revealing the source of their income up to Rs50 million. However, FBR Chairman Rashid Langrial rejected this, stating that it would essentially equate to a tax amnesty, which the IMF would not approve.
Habib explained that the informal economy’s large size discourages banks and the corporate sector from engaging in large-scale construction projects. He argued that his proposal would not constitute amnesty, as it would be limited only to legitimate first-time buyers.
The meeting concluded with the decision to engage with the IMF next month to discuss the potential Rs50 million amnesty.
Earlier this week, FBR Chairman Rashid Langrial indicated that consensus appeared to be forming on providing relief to the real estate sector. Meanwhile, the National Assembly Standing Committee on Finance delayed a legal amendment that would have required upfront disclosure of the source of funds for property purchases.
The Prime Minister had formed the housing sector task force after a sharp slowdown in real estate activity, driven by high taxes and sluggish economic growth. Pakistan’s economy grew just 0.9% in the first quarter of the current fiscal year.
The Prime Minister emphasized that any package aimed at the real estate sector should help stimulate construction and economic activity. The task force also discussed offering interest rate subsidies to enable lower- and middle-income groups to secure bank loans for homebuilding. Minister Ahad Khan Cheema was tasked with drafting recommendations, which are expected next week.
Although former Prime Minister Imran Khan introduced an interest-rate reduction subsidy for the lower-middle class, current home loans remain expensive, with the central bank’s policy rate set at 12% and home loan rates exceeding 17%.
While tax payments from the salaried class have surged to Rs285 billion in the first half of this fiscal year—much more than the government’s target—there has been no move yet to ease fiscal burdens on them.
The National Assembly Standing Committee on Finance has delayed the approval of a bill that would have banned property purchases without an upfront source-of-funds disclosure. This delay offers relief to the real estate sector, which can now proceed with transactions without this requirement.
Government officials have clarified that no final relief package for the real estate sector has been established, and consultations with provinces and the IMF are still pending.
The real estate sector in Pakistan remains largely unregulated, with large tracts of agricultural land converted into unapproved housing societies. The oversupply of plots, coupled with high prices, and the practice of selling apartments and plots multiple times, further complicates matters. One proposed solution is to channel investment in construction projects through escrow accounts to ensure transparency.
