IMF agrees to FBR plea for 2% cut in tax on property purchase

ISLAMABAD: The International Monetary Fund (IMF) has agreed in principle to grant partial relaxations to the Federal Board of Revenue’s (FBR) request to reduce the Withholding Tax (WHT) rates on property purchases by two percent, effective from April 2025. However, the withholding tax rates on property sellers will remain unchanged.

The IMF has also agreed to reduce the Federal Excise Duty (FED) on property purchasers, while the duty on sellers will remain intact. Additionally, the IMF has approved the FBR’s request to lower the tax collection target for March 2025 by Rs60 billion, considering the increased number of holidays due to the upcoming Eid ul-Fitr. The IMF has also given its assent for raising Rs1,257 billion from banks to address the circular debt crisis plaguing the power sector.

“In a major and long-awaited development for the real estate and construction sector, the government has convinced the IMF to reduce the WHT rates for purchasers by two percent,” confirmed top official sources while speaking to ‘The News’ on Friday.

Pakistan and the IMF held a virtual meeting on Friday night, during which Pakistani authorities expressed confidence that the discussions would help finalise the Memorandum of Economic and Financial Policies (MEFP) and pave the way for a Staff Level Agreement (SLA) soon. It is expected that this was likely the last meeting, and the IMF may strike the SLA next week.

On the issue of reducing taxes on property, the FBR had requested the IMF to lower WHT rates for both sellers and purchasers under Sections 236C and 236K, respectively. However, the Fund agreed to reduce the WHT rates for purchasers. The WHT rates for purchasers currently range from 3 percent to 4 percent, depending on the slab. For the FED, the higher slab of 10 percent has been reduced to nine percent for purchasers.

The FBR presented data to the IMF, demonstrating the need to reduce transaction costs for property purchasers, who invest significant amounts and face a heavy tax burden. It was argued that lowering tax rates for purchasers would increase transactions in the real estate sector.

A day earlier, consultations between the FBR and property sector representatives highlighted that high tax burdens were causing capital flight from the country.

After extensive discussions, the IMF agreed to reduce tax rates for purchasers but declined to provide relief to sellers at present.

Pakistani authorities are awaiting the IMF’s written response, after which the proposal would be finalised and presented to the government for approval.

Regarding the tax collection target, the IMF has agreed to revise the FBR’s target downward from Rs12,970 billion to Rs12,332-12,334 billion for the current fiscal year. For March 2025, the FBR’s tax collection target was set at Rs1,220 billion. However, the FBR requested a reduction of Rs70 billion for March 2025, citing increased holidays due to Eid ul-Fitr. The IMF has agreed to this reduction but has asked the FBR to increase tax collections in April and May 2025 to meet the revised target of Rs12,334 billion by the end of June 2025.

Meanwhile, during an informal talk with journalists after attending the World Day of Glaciers event at the NDMA Headquarters on Friday, Minister for Finance Muhammad Aurangzeb expressed optimism about the ongoing negotiations with the IMF, stating that there is no major stumbling block in achieving success and that good news is expected soon.

“The ongoing talks with the IMF are heading towards the final stages and will be accomplished soon,” he said.

Pakistan and the IMF held review talks from March 4 to 14, 2025, but the discussions remain inconclusive. However, the IMF, in its statement, acknowledged significant progress made during these talks. Both sides are making last-ditch efforts to reach a consensus on the Memorandum of Financial and Economic Policies (MEFP), known as the Staff Level Agreement (SLA), under the first review of the Extended Fund Facility (EFF).

If the SLA is finalised by the first week of April 2025, the approval from the IMF’s Executive Board could be expedited. However, if the SLA is delayed until the second week of April, the approval of the next tranche might be linked to the passage of the 2025-26 budget by Parliament.

The finance minister stated that virtual talks with the IMF are ongoing and that there is no major obstacle to achieving success. While he did not specify a timeline for the SLA, he expressed hope that the negotiations would conclude soon.

Aurangzeb emphasised that Pakistan is on track to meet the fiscal discipline targets agreed upon with the IMF. “We are hoping for good news from the IMF,” he said.

He said that out of a $10 billion commitment for flood construction financing made by the international community, only one-third was materialised. The minister referred it as capacity constraints to utilise climate related financing.

He said that the government approached the IMF for Climate Resilience Fund (CRF) and the response was encouraging. In the coming days we are going to hear more about it, he added.

On the occasion of PKR Green Bond launching, the finance minister said that it was beginning to accept this fact that climate change was posing existential threat to Pakistan whether it’s flooding or growing pollution. He said that the green taxonomy framework was ready and would seek funding from multilateral and bilateral partners.

The first-ever PKR denominated Green Bond of Pakistan ‘Parwaaz Green Action Bond’ was launched in Islamabad on Friday by holding a signing ceremony.

Aurangzeb said that out of 30,000 glaceries, 10,000 were receding and it’s causing a lot of disruption on water levels.

In a related development, Finance Minister Aurangzeb held a meeting with Acting US Ambassador Ms Natalie Baker, who called on him on Friday. This diplomatic engagement comes ahead of the anticipated SLA and the subsequent presentation to the IMF Executive Board, with efforts being bolstered by support from Washington, D.C.

According to an official statement issued by the Ministry of Finance, the meeting focused on matters of mutual interest, including enhancing economic cooperation and increasing US investment in Pakistan’s priority sectors.

During the discussion, Aurangzeb briefed Ms Baker on the government’s macroeconomic reform agenda, aligned with Prime Minister Shehbaz Sharif’s vision for structural reforms and export-led economic growth. He highlighted key initiatives aimed at improving economic efficiency and ensuring sustainable and inclusive growth, such as privatisation, tax reforms, energy sector restructuring, and rightsising the federal government.

US Embassy Charge d’Affaires and acting Ambassador to Pakistan Natalie Baker commended Pakistan’s economic progress and its commitment to implementing challenging structural reforms. She acknowledged the country’s resilience and the measures taken to strengthen the foundation for long-term economic stability.

Ms Baker reiterated the US Administration’s commitment to fostering a strong bilateral relationship with Pakistan, with a particular emphasis on deepening economic cooperation and expanding investment opportunities.

Both sides reaffirmed their commitment to further strengthening economic ties and exploring new areas of collaboration to advance shared economic goals.

Our correspondent adds: Meanwhile, in a major boost to the cash-strapped government, the vacation of stay order by the Lahore High Court (LHC) in the cases regarding tax on windfall income of banks resulted in a benefit of Rs11.5 billion to the national exchequer.

While on this account, overall, in a month the national exchequer accrued a financial benefit of Rs34.5 billion, according to a statement issued by the Law Ministry.

This success was gained due to the vision of economic reforms of Prime Minister Shehbaz Sharif and improvement in the performance of the Federal Board of Revenue (FBR), it added.

The prime minister had taken notice of the stay order on cases related to tax on windfall income of banks under the Finance Act 2023 and asked the minister for law, minister for finance, attorney general and chairman FBR to constitute the best team to argue these cases.

In the last month, due to the efforts of the team, firstly Rs23 billion were recovered after the verdicts of Sindh High Court and now Rs11.5 billion were gained from the LHC decision.

The prime minister appreciated the efforts of Minister for Law and Justice Azam Nazeer Tarar, Minister for Finance Muhammad Aurangzeb, Attorney General Mansoor Awan, FBR Chairman Arshad Mehmood Langrial, Secretary Finance Imdad Bosal and their teams.

The prime minister said that due to these creative and strong steps, tax collection could be increased and there would be hope for a better economy.

A substantial amount of Rs34.5 billion was deposited in the national exchequer and this money now could be spent on projects of health, education and public welfare, he added. He said with the grace of Allah Almighty Pakistan would soon become self-sufficient with these kinds of steps.