Islamabad, January 28, 2025 – The Federal Board of Revenue (FBR) has announced new measures aimed at tackling tax evasion in Pakistan’s real estate sector, focusing on the source of funds used in property transactions. This initiative seeks to combat long-standing issues such as undervaluation and misdeclaration, which have hindered the sector’s transparency and contributed to significant revenue losses.
FBR Chairman Rashid Mahmood Langrial revealed that the authority is actively working on reducing transaction taxes within the real estate sector to encourage greater compliance. However, he emphasized that individuals looking to invest in property must now disclose the origins of their funds. This move is part of the government’s broader efforts to improve the accountability of property transactions and ensure that taxes are paid on all legitimate earnings.
A major concern in the real estate market has been the persistent undervaluation of property transactions to evade taxes. Data from the fiscal year 2023-24 paints a concerning picture of the sector’s state, with over 93.7% of property transactions in Pakistan valued below Rs 5 million. These figures reveal the widespread practice of underreporting property values to reduce the tax burden, which is a key issue the FBR seeks to address through these new regulations.
At a recent meeting, representatives from the real estate sector urged the National Assembly Standing Committee on Finance and Revenue to amend “The Tax Laws (Amendment) Bill, 2024.” They proposed an exemption for property transactions up to Rs 50 million from having to disclose the source of funds. However, Chairman Langrial clarified that the proposed changes would only impact a small percentage of investors, specifically 2.5% of the market. He reassured stakeholders that 95% of households would remain unaffected by the new measures, which are designed to reduce the involvement of ineligible entities and enhance overall tax collection.
Langrial also highlighted the significant tax gap in the real estate sector, pointing out that the top 5% of property transactions account for a missing revenue potential of Rs 1.6 trillion. In comparison, the remaining 90-95% of transactions contribute only Rs 140 billion in tax revenue. This disparity underscores the need for tighter regulations targeting high-value transactions to capture more tax revenue and address the inequities in the system.
The FBR’s data for the 2023-24 fiscal year revealed that out of 1.695 million property transactions recorded, 93.7% were valued under Rs 5 million. In stark contrast, only 3,250 transactions (0.2%) exceeded Rs 50 million in taxable value. These statistics illustrate the extent to which the real estate market has been underreporting property values and evading taxes, highlighting the urgent need for comprehensive reforms.
This renewed focus on accountability and transparency in property transactions is part of the FBR’s efforts to create a more equitable real estate market. By addressing issues like income concealment and undervaluation, the FBR aims to ensure that all stakeholders, whether individual investors or large developers, contribute their fair share to national revenue. As the government continues to implement these regulations, it is expected to see a more robust and transparent real estate market in Pakistan, one that can help boost tax revenue and promote greater financial inclusion.