KARACHI: The Association of Builders and Developers of Pakistan (ABAD) this week called on the government to provide tax relief to the real estate sector in the upcoming budget, saying the move would attract investment and could raise the industry’s contribution to the gross domestic product sixfold to 15 percent.
Pakistan’s tax policy on real estate has been criticized by builders and developers for being high compared to regional and international benchmarks, while countries like the UAE offer lower tax rates and more attractive returns on real estate investments.
Pakistan’s government is set to announce the federal annual budget on June 10.
Speaking to Arab News on Friday, ABAD Chairman Muhammad Hassan Bakshi estimated Pakistan’s real estate and construction sector has a market value of around $1 trillion, saying that major reforms could dramatically increase the industry’s contribution to the GDP.
“If the government is able to speak to the stakeholders, take them into confidence, make policies which are regionally competitive, our present share in GDP is 2.2 to 2.5 percent can jump up to 15 percent,” he said.
Speaking about the higher tax rates applicable in Pakistan, the ABAD chairman lamented that the transfer cost of a property in Pakistan for a filer is 10 to 12 percent while that for a non-filer is 30-32 percent.
He added that in Dubai, the cost of transferring the ownership of a property is four percent.
“So, my submission to the government, and to the policymakers, is to bring the rate down as to what we have in Dubai,” Bakshi said.
“Or maybe lesser, so that people who have taken the money there have an opportunity to bring the money back. Not only Pakistani people, other nationalities as well.”
The construction and real estate sectors, according to data by ABAD, combine to make the second-largest employment provider in Pakistan after agriculture, with 72 industries linked to it.
Bakshi said lower tax rates would ultimately increase revenue collection by encouraging compliance and investment. The government, economists have said, plans to raise around Rs860 billion ($3.1 billion) in new taxes in the fiscal year beginning from July.
Pakistan has sought to achieve sustainable economic growth under a $7 billion International Monetary Fund (IMF) loan program.
The IMF has called on Pakistan, which has a tax-to-GDP ratio of around 10 percent, to broaden its tax base by bringing under-taxed sectors such as real estate, agriculture and retail into the tax net.
Adviser to the Finance Minister Khurram Schehzad did not respond to Arab News’ queries on Bakshi’s comments.
In last year’s budget, the government had announced relief measures for the construction sector. This included abolishing the federal excise duty on property transfers up to 7 percent, reducing the withholding tax on property purchases and introducing tax credits to provide loans to construct low-cost houses.
Muhammad Waqas Ghani, head of research at JS Global Capital Limited, a Karachi-based brokerage firm, said incentives for real estate sector in budget FY27 would be a “positive” development for all construction-related sectors.
“We may continue to see money flowing into the real estate sector over the coming months,” Ghani said. “The government is likely to announce positive measures for the real estate sector.”
Bakshi said the construction sector’s share in Pakistan’s GDP during the previous government’s tenure was over 10 percent, which has declined to 2.2 to 2.5 percent at present.
He acknowledged some measures taken by the government that provided relief to the construction sector, such as the removal of the federal excise duty on property transactions and reductions in taxes related to property purchases and transfers.
Bakshi said ABAD has requested the government to ensure the digitalization of land records and approval processes throughout Pakistan to reduce corruption and provide convenience to investors.
“We have requested the federal government to give us a long-term, consistent policy supported by legislation,” he said.
“And when you make this policy, consultation with the stakeholders is a must.”
Bakshi said ABAD had asked the government to tax builders on a per-square-foot basis and demanded relief for first-time home buyers.
“That will save a lot of time which we spend in tax offices and lots of notices as well,” he said.
