IMF approves abolition of excise duty on property sales in Pakistan

The International Monetary Fund (IMF) has approved the abolition of the 3% federal excise duty (FED) on property sales.

"The Washington-based lender, in recent discussions, has allowed Pakistan to abolish the 3% FED on property transactions. However, the IMF staff mission has strictly instructed the government not to scrap the FED through an ordinance. Any changes must instead be enacted through a bill approved by Parliament," sources said.

The government introduced the FED in the current fiscal year’s budget. It applied to commercial properties and the first sale of residential plots or units, with rates set at 3% for tax filers, 5% for late filers, and 7% for non-filers. The tax was collected at the time of booking, allotment, or transfer.

According to sources, the Federal Board of Revenue (FBR) observed a decline in property transactions during the first eight months of the current fiscal year compared with the same period last year. Despite the slowdown, tax collection from the sector reached PKR 75 billion, attributed to the increased rates introduced in the budget.

In contrast, the FBR collected PKR 63 billion during the same period in the last fiscal year, sources added.

Insiders in the Finance Ministry indicated the government’s economic team is considering deferring the FED decision until the next budget. They reportedly expressed concerns over the challenges of getting the bill approved by Parliament.

The Tax Laws (Amendment) Bill, 2024, which includes provisions to discourage certain transactions by unregistered taxpayers, is still pending approval in the National Assembly, sources noted.

It is also pertinent that the Prime Minister's Task Force on the Housing Sector has recommended the abolition of the 3% FED.

Sources said the IMF and Pakistani officials have broadly discussed the next year’s budget in a virtual meeting. An IMF mission, led by Nathan Porter, is expected to finalize the fiscal year 2025–2026 budget by mid-May.