With Pakistan’s federal budget for the 2025–26 fiscal year looming, there is significant anticipation in the real estate market. Policymakers are under pressure to balance fiscal responsibility with economic stimulation, and real estate is bound to be part of those initiatives. The government, in talks with the International Monetary Fund (IMF), is planning to implement substantial changes that will boost tax revenues and promote investment in the real estate market.

Major Shift in Capital Gains Tax on the Horizon

One notable development anticipated in this year’s budget is the possible revision of the Capital Gains Tax (CGT) on property deals. Now, CGT is applied at a rate of 15%. During negotiations with the IMF, proposals have been made to raise this rate as high as 35%. The move aimed at aligning real estate taxation with the corporate industry, addressing the sector’s historically low contribution to national revenue.

If implemented, this would mark one of the most significant tax reforms for the property market in recent years. The reasoning behind the increase lies in the government’s push to raise the tax-to-GDP ratio to 11%, a target seen as essential for stabilizing public finances.

IMF Talks Influence Budget Strategy

The recent virtual meetings between Pakistani officials and IMF representatives included dedicated sessions on fiscal planning. Sources familiar with these discussions indicated that around PKR 400 billion in new tax measures are under consideration for the upcoming fiscal year. Real estate, considered under-taxed relative to its scale, is one of the primary areas identified for reform.

By adjusting CGT and other property-related taxes, the government hopes to unlock a more consistent and substantial revenue stream. However, this needs to be done in a way that doesn’t dampen investor confidence or slow the pace of development—something that has historically been a challenge.

Relief Measures Also in the Mix

In addition to the prospect of increased CGT, the next budget is also set to provide relief in other areas. One such area is the withholding tax imposed under Section 236C of the Income Tax Ordinance, which is currently at 3% and is charged on property sellers. In order to promote sales and facilitate the process of buying and selling as more investor-friendly way, this rate is bound to decrease.

Additionally, there are strong indications that the Federal Excise Duty (FED) on immovable properties may be removed altogether. This would simplify the cost side of property transactions and could result in higher formal transactions, particularly in the case of mid-range housing.

Revisions to Section 37 of the Tax Code

The current CGT comes under Section 37 of the Income Tax Ordinance 2001. It is applied when property is sold and declared through an income tax return. With inflation driving up property prices everywhere, the government is currently considering how to amend this section to align it with today’s market situation.

Experts indicate that reforms here would assist in linking property tax to general economic measures, thus enhancing transparency and eliminating the incentive to under-declare asset value.

Encouraging Investment as the Tax Net Is Enlarged

Although raising CGT and reforming withholding taxes might seem to be a tightening fiscal policy, the overall intent is to make taxation easier to collect while encouraging an environment of genuine investment. The government is said to be set on planning several different taxes, including those on non-income-producing financial transactions and raw material imports, with the aim of making the system fairer.

On the other hand, income-based sources; dividend and capital gains are likely to maintain higher tax rates, in line with the world fiscal standards. This dual strategy will increase investment in productive areas like housing, construction, and infrastructure while reducing loopholes that enabled tax evasion in the past.

Sector-Wide Impact Expected

These reforms will probably have far-reaching consequences for buyers, sellers, and developers. For developers, particularly those engaged in large-scale residential or commercial development, tax clarity can enhance project planning and budgeting. For end-users, any lowering of transactional taxes can make housing more affordable, especially for first-time homebuyers.

Investors, both local and overseas, have long demanded a transparent and consistent tax system in Pakistan’s property market. The reforms anticipated in Budget 2025–26 may finally deliver on that promise, provided they are implemented with clarity and foresight.

Conclusion

The federal budget 2025–26 holds major promise and some challenges for Pakistan’s real estate sector. On one hand, higher CGT could bring more properties into the tax net, strengthening government revenues. On the other, measures like reduced withholding taxes and the possible elimination of FED may inject new life into property investment. As details unfold, stakeholders across the sector will be watching closely, hoping for a balanced, growth-oriented outcome.