Budget 2025-26: Government increase 40% CGT on property sales

Another hit appears to be looming over Pakistan’s property market as the federal government considers a sharp increase in Capital Gains Tax (CGT) on property transactions in the upcoming fiscal budget 2025-26. The proposed measure comes as part of broader fiscal reforms aimed at boosting revenues and aligning with International Monetary Fund (IMF) conditions.

Sources familiar with the matter indicate that the CGT on property sales may rise from the current 15% to as high as 40%, potentially matching the corporate income tax rate. “The proposal, currently under discussion, forms part of broader fiscal reforms aimed at increasing government revenue and meeting International Monetary Fund (IMF) conditions.”

Officials from the Federal Board of Revenue (FBR) argue that the existing structure permits significant profits from real estate to go largely untaxed, leading to major losses for the national treasury. “FBR officials argue that current tax structure allows large profits from property transactions to go largely untaxed, resulting in considerable revenue loss to the national treasury.”

Despite the government’s intentions, industry experts warn the proposed hike could dampen investor confidence and reduce real estate activity. “Analysts and industry insiders warn that such steep increase in CGT could discourage investment and lead to a decline in property transactions, with potential ripple effects on the broader economy.”

The CGT increase is being discussed during virtual meetings with the IMF, which is closely monitoring Pakistan’s fiscal performance. The 2025-26 budget aims to raise the tax-to-GDP ratio to 11%, while projecting total spending at 20.3% of GDP.

Meanwhile, “Property Tax Imposed On 5 Marla Houses As New System Enforced In Punjab” adds to the pressure on property owners.

While the government considers this a necessary step to boost tax collection, real estate stakeholders remain concerned. “Stakeholders in the property market are urging caution, fearing the reform may stifle growth in a key economic sector.”

No final decision has been made yet. “So far, there are all proposals. and that final decision on CGT hike is expected to be announced with the presentation of the federal budget next month.”

Previously, it was reported that the government, in consultation with the IMF, opted to eliminate the 3% Federal Excise Duty on the first sale of properties to aid the ailing real estate market. Additional proposals include removing the 10% income tax surcharge on high earners, offering tax relief for salaried individuals, standardizing stamp duties, adjusting property valuations, and providing tax incentives for affordable housing and first-time homebuyers.