Federal Government Considers Removing FED on Property Transfers Due to Lower Income

The federal government is expected to remove the Federal Excise Duty (FED) on the transfer of plots and commercial properties under the Finance Act 2024, due to lower income in the first half of the fiscal year. The Federal Board of Revenue (FBR) is likely to propose the elimination of FED on both commercial and residential property allotments and transfers. This change could be implemented in the 2025-26 budget.

Currently, developers and builders are required to collect FED at rates ranging from 3% to 7%, depending on the buyer’s tax status. However, the lack of an effective monitoring system has diminished the likelihood of the tax measure achieving its intended results.

For each developer or builder, FED is collected at 3% of the total amount on the allotment or transfer of commercial property, as well as the first allotment or transfer of open plots or residential properties, where the buyer is listed as an active taxpayer. In cases where the buyer has not filed an income tax return, the FED rate increases to 5%, and if the buyer is not a tax filer, the rate rises to 7%.

Additionally, the government is considering reducing transaction taxes on real estate purchases and sales. The Housing Sector Development Task Force has recommended abolishing the Capital Value Tax (CVT) in Islamabad, rationalizing stamp duty across provinces, and offering tax exemptions for real estate investments up to Rs. 50 million.