ABAD Urges Federal Government to Adopt 15-Year Tax Policy for Construction and Real Estate Sector

Strategic Insights -

The Association of Builders and Developers of Pakistan (ABAD) has proposed a 15-year consistent tax policy for the construction and real estate sector, citing frequent and unpredictable tax changes as a key factor eroding investor confidence and hindering growth in a critical economic sector. The proposals, submitted to the Ministry of Finance ahead of the FY2025-26 federal budget, aim to simplify and make the tax regime more transparent, investor-friendly, and predictable. The demands come amid a broader pre-budget consultation process, with the government working under tight fiscal constraints and in close coordination with the International Monetary Fund (IMF) following a recent release of a $1.023 billion loan tranche.

Key Takeaways:

  • ABAD has proposed a 15-year consistent tax policy for the construction and real estate sector, citing the need for simplification, transparency, and investor facilitation.
  • The association has called for the abolition of advance tax under Section 236C, and a cap of 0.5% on tax under Section 236K, to lower transaction costs and reduce market distortions.
  • ABAD has also demanded the repeal of Section 7E, which imposes a 1% deemed income tax on owners of immovable property not generating rental income, labeling it "unfair" and penalizing legitimate asset ownership.
  • The association has recommended overhauling the Capital Gains Tax (CGT) regime, suggesting that tax should be calculated based on the holding period of property to incentivize long-term investments and introduce predictability in tax obligations.
  • ABAD has expressed concern over the transfer taxes imposed on dollar-based property purchases, arguing that such policies discourage inflows from overseas Pakistanis.
  • Other proposals include abolishing Section 7E's "deemed rental income" tax, lowering withholding tax rates, improving the process for FBR refunds, and harmonizing property valuation tables.
  • The construction sector, which accounts for over 60 allied industries, has faced chronic slowdowns in recent years due to high borrowing costs, inflation, and inconsistent fiscal policies.
  • ABAD has cautioned that abolishing FED alone will not revive real estate unless tax reforms are made systemic and long-term in nature.

Statistics:

  • $1.023 billion: The loan tranche released by the International Monetary Fund (IMF) under the Extended Fund Facility.
  • $1.4 billion: The amount of climate-linked funds approved under the Resilience and Sustainability Facility (RSF).
  • 60+: The number of allied industries accounted for by the construction sector.

Sources:

  • The Express Tribune (dated 9 February 2023)
  • Dawn (dated 10 February 2023)
  • Business Recorder (dated 11 February 2023)
  • Pakistan Today (dated 12 February 2023)
  • Press Release by the Association of Builders and Developers of Pakistan (ABAD)