by Mohsin Abbas
Pakistan Budget 2025-26: Real Estate Tax & Policy Changes
Budget 2025-26 Real Estate Overview
The much-anticipated Federal Budget 2025-2026 has introduced significant amendments that will directly affect buyers, sellers, and investors in Pakistan’s real estate sector. While the complete picture is still unfolding, the proposed changes signal a clear direction towards broader tax compliance and transparency. As Mohsin Estate & Builders DHA Lahore, we’re here to break down what these updates mean for you.
What Are the Major Real Estate Tax Changes in Budget 2025-26?
The new budget brings several crucial adjustments to property taxation and regulations. Understanding these points is vital for anyone involved in property transactions:
Advance Tax (Purchaser Tax) Reduced
The Advance Tax on property purchases, previously at 3%, has been reduced to 1.5%. This is a notable relief for buyers, potentially lowering the initial financial burden of acquiring property.
Key Highlights for Property Owners
Withholding Tax (Seller Tax) Increased
Conversely, the Withholding Tax (WHT) on property sales has seen an increase, moving from 0.3% to 4.5%. This will directly impact sellers, necessitating a recalculation of their sale proceeds.
FED Tax on Residential & Commercial Property Abolished
A significant positive development is the elimination of Federal Excise Duty (FED) on both residential and commercial properties. This move is expected to provide substantial relief to property developers and buyers, potentially making new constructions more affordable.
Non-Filers Barred from Property & Vehicle Purchase
In a major push for tax compliance, non-filers will no longer be eligible to purchase property or vehicles. This strict measure aims to broaden the tax net and encourage individuals to become active tax filers.
Tax 7E Remains Unchanged
The controversial Tax 7E provisions will remain as they are. This tax on deemed income from immovable property continues to be a factor for property owners, particularly those with high-value assets.
Filer Status & Return Filing are Crucial for Property Purchase
It’s not enough to simply be a filer anymore. The budget stipulates that even if you are a filer, you will not be eligible to purchase property if you have not filed your tax returns. This emphasizes the importance of timely and consistent tax compliance.
FBR Approval Certificate for Property Investment
Perhaps the most significant change for filers: if you are a filer and have filed your returns, you will still need an Approval Certificate from the Federal Board of Revenue (FBR) to purchase property. This certificate will require you to demonstrate that the funds being invested in the property are “Declared Money.” The FBR is expected to introduce a new portal for this approval process, with further clarity expected in the coming days.
What Budget 2025‑26 Real Estate Offers – Affordable Property & Tax Relief?
Real estate transactions will now face significantly reduced WHT rates:
1st slab: Reduced from 4% to 2.5%
2nd slab: Reduced from 3.5% to 2%
3rd slab: Reduced from 3% to 1.5%
Federal Excise Duty (FED) Abolished
The government has completely removed FED on the transfer of real estate assets, including residential and commercial plots and properties.
How the Budget 2025‑26 Property Measures Reduce Costs for Buyers & Sellers?
Detail reduced advance tax (from 3% → 1.5%) and withholding tax slabs.
Note abolishment of 7% FED on residential/commercial transfers
profit.
Why Pakistan Budget 2025 Real Estate Rules Emphasize Compliance
The Pakistan Budget 2025 emphasizes compliance in the real estate sector through a combination of tax incentives and enforcement measures. The goal is to encourage formal investment, broaden the tax base, and ensure a more transparent and equitable market.
Commercial & Transactional Impact of Budget 2025‑26 Real Estate Policies
2025-26 budget proposes tax relief and incentives for the real estate sector, including reduced withholding tax (WHT) on property purchases and the abolition of Federal Excise Duty (FED) on property transfers. These changes aim to lower transaction costs, stimulate demand, and boost investment in the sector.
How Do These Changes Impact Real Estate Buyers, Sellers, and Investors?
These budgetary amendments will reshape strategies for property transactions in Pakistan:
- For Buyers: The reduction in Advance Tax offers some immediate relief. However, the strict rules for filers and the requirement for FBR approval for declared money will add an extra layer of complexity and time to the purchase process. It heavily favors legitimate, declared income.
- For Sellers: The increased Withholding Tax means sellers will need to factor in a higher tax deduction from their sale proceeds. This might influence asking prices or negotiation strategies.
- For Investors: The abolition of FED tax could stimulate new construction and development projects, potentially leading to more investment opportunities in the long run. However, the heightened scrutiny on declared funds and filer status will necessitate a more formal and transparent approach to investments.
- For Non-Filers: The message is clear: become a filer and consistently file your returns if you wish to participate in the formal property market. This will significantly restrict property ownership for non-compliant individuals.
Why Are These Budgetary Changes Being Introduced?
The overarching goal behind these changes appears to be a multi-pronged approach to:
- Broaden the Tax Base: By making filer status and return filing mandatory for property and vehicle purchases, the government aims to bring more individuals into the tax net.
- Promote Tax Compliance: The stricter rules are designed to encourage timely and honest declaration of income and assets.
- Curb Undisclosed Wealth: The requirement for FBR approval for declared money is a direct measure to combat the use of undeclared funds in property transactions, fostering greater transparency in the real estate sector.
- Increase Revenue: While some taxes are reduced, others are increased, and the overall focus on compliance is expected to boost government revenue.
So, Where's the Relief in This Budget?
ndeed, the immediate reaction for many might be to question the “relief” amidst these new regulations. The primary relief comes in two areas:
- Reduction in Advance Tax for Purchasers: A direct saving on the initial purchase cost.
- Abolition of FED Tax: This could translate to lower property development costs and potentially more competitive pricing for new projects in the future.
However, the emphasis is heavily on formalizing the economy and increasing transparency. For those who are already compliant filers with declared income, these changes aim to create a more level playing field and a more structured market. For others, it’s a strong push towards formalizing their financial activities.
What the Pakistan Budget 2025-26 Means for Real Estate
Budget 2025–26 represents a turning point for Pakistan’s real estate sector. With strategic tax cuts, simplified regulations, and enhanced access to financing, the government has laid the groundwork for a modern, transparent, and investor-friendly property market.
Overview of Budget 2025-26 Property Tax Incentives
Pakistan’s Federal Budget 2025-26 has introduced significant changes to property taxes, primarily aimed at stimulating the real estate sector and promoting homeownership. Here’s an overview of the key property tax incentives and changes:
1. Major Reductions in Withholding Tax (WHT) on Property Purchases:
The WHT rates on real estate transactions for buyers have been significantly reduced across different slabs. The new rates are:
1st slab: Reduced from 4% to 2.5%
2nd slab: Reduced from 3.5% to 2%
3rd slab: Reduced from 3% to 1.5%
These reductions are intended to lower upfront transaction costs for buyers, making property more affordable and encouraging market activity.
2. Federal Excise Duty (FED) Abolished:
The 7% Federal Excise Duty (FED) on the transfer of commercial properties, plots, and houses has been completely removed.
This abolition aims to eliminate a significant financial hurdle for investors and simplify the legal framework for property transactions, promoting more transparent and cost-effective deals.
3. Stamp Duty Cut in Islamabad:
In Islamabad, the stamp duty on property transactions has been drastically reduced from 4% to 1%.
This 75% reduction makes Islamabad’s real estate market more attractive. Other provinces are expected to consider similar reductions to create a more unified and competitive investment climate.
4. Tax-Free Credits for Affordable Housing and Promotion of Mortgage Financing:
New tax incentives have been introduced for:
Houses up to 10 marlas (~2,250 sq ft)
Flats up to 2,000 sq ft
The government is also launching new mortgage financing schemes to promote homeownership, particularly among middle-income families. These tax-free credits and easier financing options are expected to improve access to quality housing and boost demand.
5. Emphasis on Formalizing the Real Estate Sector:
The reforms align with a broader strategy to formalize the real estate sector, focusing on:
Expanding mortgage finance.
Supporting low-cost housing projects.
Reducing transactional and compliance costs.
Pushing towards a more regulated and documented economy.
Impact on Stakeholders:
Buyers: Benefit from lower upfront costs and new tax credits, making homeownership more accessible.
Developers: Experience higher margins due to the removal of FED and lower stamp duty, potentially leading to faster project approvals.
Lenders: Anticipate rising demand for housing finance, leading to the expansion of mortgage portfolios and new lending products.
Government: Aims for a broader tax base through increased transaction volume and growth in the construction sector, contributing to GDP and job creation.
Important Note on Sellers’ Tax:
While buyers are receiving relief, it’s important to note that the tax for sellers has been increased in some instances.
For property valuing up to Rs50 million, seller tax has increased from 3% to 4.5%.
For transactions from Rs50 million to Rs100 million, seller tax is now 5%.
For deals over Rs100 million, seller tax is 5.5%.
This indicates a nuanced approach where the government is attempting to stimulate transactions while also trying to extract more revenue from property sales by sellers. Some experts have expressed concerns that increasing taxes on sellers while providing relief to buyers might not fully revive the real estate sector, as both parties are crucial for transactions.
How Budget 2025-26 Real Estate Changes Benefit Buyers
Budget 2025–26 represents a turning point for Pakistan’s real estate sector. With strategic tax cuts, simplified regulations, and enhanced access to financing, the government has laid the groundwork for a modern, transparent, and investor-friendly property market.
Impact on Real Estate Investors
Pakistan’s Federal Budget 2025-26 has placed a notable emphasis on providing mortgage and loan relief to stimulate the real estate and housing sector, particularly for affordable housing. Here’s a breakdown of the key initiatives:
1. Mark-up Subsidy for Low-Cost Housing Schemes:
- The federal government has allocated Rs 5 billion in Budget FY26 for a mark-up subsidy under a new low-cost housing scheme.
- This scheme will be launched in collaboration with the State Bank of Pakistan (SBP).
- The primary aim is to enable individuals to build homes through affordable credit, addressing the country’s housing shortage.
- This move signifies a revival of affordable housing initiatives after the previous “Mera Pakistan Mera Ghar” scheme was suspended in June 2022.
2. Tax Credits on Mortgage Profits:
- A significant incentive is the introduction of a proportionate tax credit on the profit paid on loans obtained for the construction or acquisition of a house.
- This tax credit applies to houses measuring up to 250 square yards (approximately 10 marlas) or flats with an area of 2,000 square feet or less.
- This measure aims to reduce the effective cost of borrowing for eligible homebuyers, making mortgage financing more attractive and accessible for middle- and low-income segments.
3. Government Guarantees to Banks for Housing Finance:
- While not explicitly part of the budget allocation, there have been discussions and announcements from the Ministry of Planning that the government is prepared to offer 100% guarantees to banks to ensure the security of their capital for affordable housing finance schemes.
- This aims to encourage commercial banks to devise easier housing finance frameworks and expand their mortgage portfolios without fear of significant risk. This support is crucial for overcoming the challenges faced in long-term housing finance.
4. Subsidy to Naya Pakistan Housing Authority (NPHA):
- An additional Rs 1 billion has been allocated as a subsidy to the Naya Pakistan Housing Authority (NPHA). This is expected to further support the sector’s initiatives in providing housing solutions.
5. Promotion of Mortgage Financing through a Comprehensive System:
- The government has endorsed a plan to promote mortgage financing through a comprehensive system, explicitly stating that this will be supported by a dedicated policy from the State Bank of Pakistan. This indicates a structured approach to increasing the penetration of housing finance in the country.
Property Taxes, FED & Withholding Reforms in Budget 2025-26
The withholding tax has been reduced from 4% to 2.5% in the first slab, from 3.5% to 2% in the second slab, and from 3% to 1.5% in the third slab. The Federal Excise Duty on the transfer of commercial properties, plots, and houses has been abolished, which was 7% in the previous budget.
Pakistan Budget 2025-26 Impact on Property Buyers, Sellers & Developers
Positive Impacts:
Reduced Withholding Tax (WHT) on Purchases: This is the most significant relief for buyers. The WHT rates on property transactions have been lowered across all slabs:
- From 4% to 2.5% (1st slab)
- From 3.5% to 2% (2nd slab)
- From 3% to 1.5% (3rd slab) This directly reduces the upfront cost of buying property, making it more affordable.
- Abolition of Federal Excise Duty (FED)
- Reduced Stamp Duty in Islamabad
- Tax-Free Credits for Affordable Housing
- Promotion of Mortgage Financing
Challenges/Considerations for Buyers:
- Non-Filer Restrictions
- Mandatory Tax Return Filing
- Scrutiny on Declared Funds
Impact on Property Sellers
- Increased Withholding Tax (WHT) on Sales
- Potential for Increased Demand
- Formalization Pressure
- Tax 7E Remains Unchanged
Impact on Property Developers
- Abolition of Federal Excise Duty (FED)
- Reduced Stamp Duty (Especially in Islamabad)
- Increased Demand due to Buyer Incentives
- Promotion of Mortgage Financing:
- Focus on Formalization
Pakistan Budget 2025-26 Property Tax Reforms
The Pakistan Budget 2025-26 has introduced significant property tax reforms aimed at stimulating the real estate sector, formalizing the market, and promoting homeownership. While there’s notable relief for buyers, sellers might see increased tax burdens.
Here’s a breakdown of the key property tax reforms:
1. Reduced Withholding Tax (WHT) on Property Purchases:
- The WHT rates on property purchases have been substantially reduced across various slabs:
- Previously 4% → Now 2.5%
- Previously 3.5% → Now 2%
- Previously 3% → Now 1.5%
- This reduction is intended to lower the entry cost for buyers, particularly in high-value transactions, and improve market liquidity.
2. Abolition of Federal Excise Duty (FED) on Property Transfers:
- The 7% FED on the transfer of both commercial and residential properties has been completely removed.
- This eliminates a significant cost burden for investors involved in secondary market transactions and commercial portfolios, simplifying the legal landscape.
3. Reduced Stamp Duty in Islamabad:
- Stamp duty on property transfers in the Islamabad Capital Territory has been drastically cut from 4% to 1%. This makes Islamabad a more attractive real estate market and may set a precedent for other provinces.
4. Tax Credit for Homebuyers:
- A tax credit scheme has been introduced for first-time buyers investing in homes up to 10 marlas or flats under 2,000 sq. ft.
- This initiative is designed to encourage formal documentation and mortgage-backed ownership, especially among salaried professionals, and promote affordable housing.
5. Increased Taxes for Sellers:
- While buyers receive relief, taxes for sellers have generally increased:
- From 3% to 4.5% on properties valued up to Rs50 million.
- 5% on transactions from Rs50 million to Rs100 million.
- 5.5% on deals worth over Rs100 million.
- This measure aims to discourage property flipping and encourage long-term holding.
6. Strict Measures Against Non-Filers:
- To curb undocumented investments and bring more individuals into the formal tax net, the budget imposes strong restrictions on non-filers. They are now barred from purchasing property or vehicles, and advance tax on cash withdrawals by non-filers has been increased from 0.6% to 1%.
7. Rationalization of Capital Gains Tax (CGT):
- The Capital Gains Tax (CGT) on immovable properties is expected to be revised from July 1, 2025, taking into account inflation and property costs.
Withholding Tax Updates in Budget 2025-26
The Pakistan Budget 2025-26 introduces a number of significant updates to the withholding tax (WHT) regime, with a clear focus on expanding the tax base, formalizing the economy, and generating additional revenue. Here’s a breakdown of the key changes:
1. Property Transactions:
- Reduced WHT on Property Purchases: This is a major change to incentivize buyers. The WHT rates on property purchases have been reduced across various slabs:
- Previously 4% → Now 2.5%
- Previously 3.5% → Now 2%
- Previously 3% → Now 1.5%
- Increased Taxes for Sellers: While buyers get relief, sellers will face higher taxes:
- From 3% to 4.5% on properties valued up to Rs50 million.
- 5% on transactions from Rs50 million to Rs100 million.
- 5.5% on deals worth over Rs100 million.
- Rationalization of Capital Gains Tax (CGT): The CGT on immovable properties is expected to be revised from July 1, 2025, to account for inflation and property costs.
2. Non-Filers and Economic Transactions:
- Increased WHT on Cash Withdrawals by Non-Filers: The withholding tax on cash withdrawals by non-filers from banks has been increased from 0.6% to 0.8%. (Note: An earlier proposed rate of 1% was later corrected to 0.8%). The cash withdrawal limit for non-filers subject to this tax has also been raised from Rs50,000 to Rs75,000.
- Restrictions on Non-Filers: To bring more individuals into the tax net, stringent measures have been imposed. Non-filers are now barred from purchasing motor vehicles, immovable property, and securities (including debt securities or mutual fund units). Banks will also not allow non-filers to open or operate certain types of bank accounts.
- Disallowance of Expenditures for Cash Sales/Purchases:
- 50% of expenditures attributable to cash sales exceeding Rs200,000 are proposed to be disallowed.
- Purchases from non-NTN (National Tax Number) holders are proposed to be disallowed at 10%.
3. Services Sector:
- Increased General WHT Rates for Services: The general withholding tax rates for services rendered have been enhanced from 11% to 15%.
- Increased WHT Rates for Specified Sectors: For specified sectors, the rate is proposed to be revised upwards from 4% to 6% / 8%, depending on the specific service. (Note: IT and IT-enabled Services are exceptions).
- Increased WHT on Sportspersons: The withholding tax for sportspersons has been increased from 10% to 15%.
4. Financial Transactions:
- Increased WHT on Profit on Debt Payments: The withholding tax rate for profit on debt payments has been increased from 15% to 20%.
- Increased WHT on Dividends from Mutual Funds: The tax rate on dividends from mutual funds deriving income from profit on debt has been increased from 15% to 25%.
- WHT on Capital Gains on Pre-mature Disposal of Debt Instruments: A withholding tax of 15% has been introduced for capital gains on pre-mature disposal of debt instruments.
5. Digital Economy and E-commerce:
- Final WHT on Pakistan-based Digital Transactions: A final withholding tax is proposed for Pakistan-based digital transactions on e-commerce platforms.
- Expanded Scope of WHT for Online Marketplaces: The withholding tax scope has been expanded to cover transactions settled via online payment or Cash on Delivery (CoD). The WHT rate on local supplies made by non-active taxpayer vendors through online marketplaces is set to increase from 1% to 2%. Payment intermediaries (banks, financial institutions, exchange companies, and payment gateways) will collect sales tax on digital payments, while couriers will handle tax collection for CoD transactions.
- Digital Presence Proceeds Tax: A 5% digital presence proceeds tax is proposed on foreign vendors with a significant digital presence in Pakistan.
6. Other Notable Withholding Tax Related Measures:
- Extension of Income Tax and WHT Exemption for Erstwhile Tribal Areas: The income tax exemption along with withholding tax exemption for erstwhile FATA/PATA areas has been proposed for extension for one year, up to Tax Year 2026.
- Tax Credit on Profit on Debt for Home Loans: A tax credit on profit on debt for loans obtained for construction or acquisition of a house (up to 250 sq. yd. or a flat having 2,000 sq ft. or less area) has been reintroduced with certain modifications.
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Need help navigating the 2025-26 property tax changes?
Mohsin Estate & Builders DHA Lahore is closely monitoring these developments. We are committed to keeping our clients informed and guiding them through these new regulations to ensure smooth and compliant property transactions. Stay tuned for further updates as more clarity emerges from the FBR regarding the new portal and approval processes.
Contact us today to learn more with full confidence.
Mohsin Abbas
Mohsin Estate ®
Address: Basement of Plaza.37, Sector A Commercial Area Phase 6 DHA, Lahore, 54792
