ISLAMABAD – An economic think tank, while strongly recommending exempting construction sector from advance/sales taxes, has claimed that slashing transaction taxes would significantly increase housing market activity and reduce capital outflow of estimated $10 billion to $ 12 billion to Middle East.
An economic think tank has strongly recommended Federal Board of Revenue (FBR) to exempt construction sector from advance taxes and sales tax in coming budget (2025-26) to reduce the overall burden of transaction taxes on real estate sector.
According to a report of Economic Policy & Business Development think tank on “Housing and Construction Sector-Challenges and Recommendations”, it has recommended the FBR to reduce transaction taxes burden during buying and selling of immovable properties. This is needed to deal with the housing deficit with 10 million units and growing day by day. Around 72 allied industries of the real estate sector are operating at only 30-40% capacity.
The report revealed that the FBR should also simplify tax on deemed income basis under section 7E of the Income Tax Ordinance 2001 and implement an expeditious dispute resolution system.
Overall, the economic think tank has recommended rationalisation of tax regime on the real estate sector for 2025-26.
The government should also develop comprehensive town planning framework, it recommended. The real estate revival is as a key driver of economic growth keeping in view its ability to generate employment, address critical housing shortages, and sustain 40-50 allied industries.
Think tank pointed out that the Real Estate Regulatory Authority (RERA) has been established, but not fully functional.
To address the market irregularities and lack of regulation in the real estate sector, National Assembly had passed the “Real Estate Regulatory Authority Act (2020)” to regulate the real estate sector in Islamabad. The report also recommended that revival of Mera Pakistan Mera Ghar scheme requires urgent attention. Regarding the tax and regulation barriers, the report pointed out that there are transaction taxes of 8-11% with a complex approval process creating bottlenecks. High costs of inputs, absence of systematic land development planning, undue burden of wealth reconciliation on buyers and sellers are some of the other barriers.
The think tank recommended reduction of total transaction tax burden to 2-2.5 percent, from 2 to 2.5 percent on sellers and 1.5 percent to 2 percent on buyers from the existing 3 to 4 percent, provincial stamp duty to 0.5 percent with floating rate and exempt construction sector from advance taxes and sales tax. The think tank claimed that reducing transaction taxes would significantly increase housing market activity, reduce capital outflow to Middle East (estimated $10 to $12 billion) and enable formalization of the real estate sector while improving affordability.
It recommended to establish operational RERA with immediate effect; implement online building approval system; create digital mortgage platforms; develop centralized property database; implement blockchain solutions for transparent transactions; promote modular/prefab construction and develop green building standards.
Think tank has further recommended creating vocational training institutes with NAVTTC and TEVTA; implement standardized wage structures; develop safety training protocols; launch programs to retain skilled professionals and promote gender-inclusive workforce initiatives.
The think tank recommended to mandate minimum 5 percent bank credit allocation for housing, fixed rate mortgage products, structure financing for construction business cycle, and introduction of Islamic financing: Diminishing Musharakah, Ijara, and Wakala.
