Realty sector gets Rs34b tax relief

The reduction is steeper despite an uptick in the real estate sector after the government reversed its policy to discourage speculative investment., the number of transactions and the value of properties have started increasing, yet their tax contributions plunged during the first four months of this fiscal year.

As a result, the gap between tax payments by the salaried class and the realty sector, which was favoured by Prime Minister Shehbaz Sharif through policy reversal, increased by 360% in just four months. The salaried class paid roughly Rs193 billion in income tax, which was Rs151 billion, or 360%, higher than the realty sector contribution.

Last year, the salaried class had paid Rs179 billion in four months. In June this year, on the request of PM Sharif's government, the International Monetary Fund (IMF) endorsed a 50% cut for real estate and a fixed tax scheme for retailers.

The influential trading and real estate sectors remained largely outside the net, with the IMF either endorsing tax concessions or keeping its eyes closed. Collecting due taxes from agriculture, real estate and traders was part of the three-year $7 billion loan package.

The board is tentatively scheduled to approve the fifth loan tranche next month. In addition to Rs193 billion in income tax payments, the tax collection from professional services rose 17% to Rs111 billion during the July-October period.

Some of the salaried persons are also taxed under this head. In fiscal year 2026, the realty sector had paid Rs236 billion, but it has now been halved. In the budget, the government reduced the advance tax on sale and purchase of immovable property by 50%.

On the sale of property, three slabs have been merged, and a single rate of 2.75% has been introduced against 5.5%. On the purchase of property, the tax rate has been reduced from 2.5% to 1.25%.

Because of this steep reduction, the advance income tax collection on the sale of property decreased from Rs52.7 billion to Rs27.3 billion in four months, a reduction of Rs25.4 billion, or 48%. Likewise, on the purchase of properties, the income tax collection dipped from Rs23.1 billion to Rs14.7 billion, a reduction of Rs8.4 billion, or 37%,.

Official data showed that the withholding taxes paid by wholesalers and retailers almost remained stagnant during the first four months of the current fiscal year. The combined withholding taxes paid by wholesalers and retailers amounted to Rs24.7 billion.

These were Rs600 million, or 2.5%, more than the last fiscal year. Wholesalers paid Rs8.8 billion in four months, down by Rs571 million, or 6.5%. Instead of using the data of wholesalers to go after the retailers, the Federal Board of Revenue introduced a fixed tax scheme that has miserably failed.

The traders, after making promises to become tax return filers, stayed outside the net amid a lack of political will to go after them. The FBR has digitally mapped 1.2 million small shopkeepers who were required to file returns but opted to stay out.

Prime Minister Shehbaz Sharif has not yet given the go-ahead to go after them. Retailers paid Rs16.5 billion in income tax, higher by Rs1.2 billion, or 8%, than the comparative period of the last fiscal year.

The combined taxes paid by retailers and the real estate sector amounted to a mere Rs67 billion. It was Rs126 billion, or 189%, less than the taxes paid by the salaried class.

In the budget, the government claimed that it had given Rs52 billion in relief to the salaried class through a reduction of up to 3% in the tax rate and abolishing the 9% surcharge calculated on the highest tax rate of 35%.

It also increased the applicability limit of the maximum tax rate of 35% from Rs4.1 million to Rs7 million annually. The massive reduction in collection from real estate has widened the gap between income tax payments made by the salaried class and the real estate sector.

Before the start of the IMF programme, the annual contribution of the salaried class was Rs391 billion, which within two fiscal years of the IMF programme increased to Rs629 billion as of June 2026. The FBR has also booked a Rs95 billion tax shortfall for the July-October period, registering only 6.5% growth in revenues.

The 6.5% growth was less than half of the prevailing nominal economic growth rate, highlighting the revenue slippages and weak enforcement.