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Reduction of Capital Gains Tax (CGT) and Withholding Tax (WHT) Rates in FY26

Rise in Capital Gains Tax (CGT) and Withholding Tax on Real Estate Properties to Occur in Islamabad

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Immovable property tax rates, including Capital Gains Tax (CGT) and Withholding Tax, will...
Immovable property tax rates, including Capital Gains Tax (CGT) and Withholding Tax, will reportedly undergo changes in Islamabad.

Reduction of Capital Gains Tax (CGT) and Withholding Tax (WHT) Rates in FY26

Peeping Into Pakistan's Upcoming Budget (2025-26): Shaking Up the Real Estate Sector

Get ready, real estate enthusiasts! The new budget, set to drop on July 1, 2025, promises significant changes for buyers and sellers in the property market. Our insider sources have painted a picture of revised tax policies that aim to make transactions smoother and more attractive.

First off, say goodbye to that pesky federal excise duty! Yes, you heard it right. The 2025-26 budget is planning to wave goodbye to it. Plus, get ready to witness a sizeable reduction in the withholding tax on the import of raw materials/inputs.

But, what about the dreaded Capital Gains Tax (CGT) on immovable properties? Fear not! The inflated rates have gotten the axe too, thanks to mounting inflation and escalating property costs. The CGT, regulated under section 37 of the Income Tax Ordinance 2001, will be applicable to sellers accordingly. Mark your calendars, as these new CGT rates apply from July 1, 2025.

On the other hand, the crucial Withholding Tax on buying and selling of immovable properties gets a cut as well. Currently, sellers need to cough up 3% under section 236C of the Income Tax Ordinance 2001. However, it's only a matter of time before these rates plummet to a more wallet-friendly figure.

The Government is keen to make life easier for salaried individuals, who contribute heavily to the WHT kitty. So, they might as well look forward to a reduction in withholding taxes on all financial transactions – except those where income is gained, like dividends, for instance.

Muhammad Ahsan Malik, a seasoned real estate expert, points out that the Task Force for the development of the housing sector has thrown its weight behind the abolition of section 7E of the Income Tax Ordinance, capital value tax (CVT) in Islamabad, and the reduction in transaction taxes on buying/selling of immovable properties. The task force's recommendations also nod towards enhancing the transparency of non-resident verification by switching to an online system via NADRA and providing a uniform rate for filers and late filers to eliminate disparities.

Moreover, the task force suggests abolishing section 7 E of the Income Tax Ordinance and standardizing stamp tax rates across provinces and ICT to ensure a streamlined tax system. The pragmatic recommendations also touch on the need for uniform taxation policies through the National Tax Council and the waiver of wealth reconciliation for investment in real estate and construction sector up to Rs. 50 million.

To top it all off, property valuations will be revised every three years to keep in step with market prices. Expect some exemptions for specific categories like low-cost housing, government plots, and first-time homebuckers, too!

With Rs265.745bn WHT already paid in H1FY25, these changes are bound to make waves in Pakistan's real estate sector. Stay tuned for more updates as the budget unfolds!

  1. In 2025, the federal excise duty will be abolished, making property transactions smoother.
  2. The import of raw materials/inputs will experience a reduction in withholding tax.
  3. The Capital Gains Tax (CGT) on immovable properties has been reduced due to inflation and escalating property costs.
  4. The Withholding Tax on buying and selling of immovable properties is expected to decrease further.
  5. Salaried individuals may receive a reduction in withholding taxes on all financial transactions, except dividends.
  6. Muhammad Ahsan Malik, a real estate expert, confirms that the task force is pushing for the abolition of the CVT in Islamabad and the reduction in transaction taxes.
  7. The task force recommends standardizing stamp tax rates across provinces and Islamabad, as well as eliminating disparities through an online non-resident verification system.
  8. Uniform taxation policies are being considered through the National Tax Council, and a waiver of wealth reconciliation for investment in real estate and construction sector up to Rs. 50 million is suggested.
  9. Property valuations will be revised every three years, and exemptions will be granted for specific categories such as low-cost housing, government plots, and first-time homebuyers.

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