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Taxes play a crucial role in shaping investment decisions, property transactions, and business strategy. At Chakor, our Taxes section demystifies Pakistan’s tax landscape as it relates to real estate, construction, and investment, covering policy updates, filing obligations, and the financial implications of every major change.

Stay ahead of your obligations and make decisions that are as tax-smart as they are financially sound.

CategoriesNews Property Laws Property Taxes Real Estate Real Estate Investment

FBR to Refund Section 7E Tax on Properties Above Rs25mn After Court Strikes Down Law

ISLAMABAD: The FBR has agreed to refund tax collected on deemed rental income from immovable properties under Section 7E of the Income Tax Ordinance, 2001, months after Pakistan’s FCC struck the provision down as unconstitutional.

The relief follows sustained advocacy by the Lahore Tax Bar Association’s Public Interest Litigation Committee, whose chairman, Waheed Shahzad Butt, had repeatedly petitioned the FBR since the FCC’s May 7, 2026 verdict voided Section 7E in its entirety, along with all notices issued under the clause since its introduction through the Finance Act 2022.

In a letter dated September 23 to all Chief Commissioners of Inland Revenue across large taxpayer, corporate, and regional offices, the FBR directed that it must not turn down revision requests filed in response to the court order and must process any refunds arising from such revisions without delay.

The reversal affects a wide pool of taxpayers, as Section 7E applied a 5% deemed-income tax on the FBR-assessed market value of properties worth more than Rs25 million.

Butt welcomed the move as a significant win for taxpayers, noting it would spare both the exchequer and litigants from prolonged legal battles. However, he clarified that the FBR’s directive is limited strictly to Section 7E and does not affect a separate, unresolved dispute over Super Tax under Section 4C, where the FCC upheld the levy but excluded certain exempt capital gains, including inherited property and long-held real estate.

Pending a broader refund mechanism, the LTBA-PILC has proposed adjusting amounts collected under both Section 7E and Section 4C against taxpayers’ FY26 liabilities, urging the FBR to extend similar expedited treatment to pending Super Tax claims.

CategoriesNews Property Taxes

FBR Initiates Regular Business Consultations to Address Tax Issues and Enhance Facilitation

ISLAMABAD: The Federal Board of Revenue (FBR) has initiated a structured engagement process with the business community to improve tax administration, address operational challenges, and promote a more transparent trade environment. In this regard, FBR Chairman Rashid Mahmood Langrial visited the Large Taxpayers Office (LTO) Lahore and met with a delegation from the Lahore Chamber of Commerce and Industry (LCCI).

Senior FBR officials and LCCI representatives attended the meeting, which focused on taxation matters, business facilitation, industrial concerns, and issues affecting the commercial sector.

The FBR Chairman emphasised the importance of regular communication with stakeholders and announced that similar meetings would be held monthly to ensure timely consideration of business-related concerns.

During the discussion, the LCCI delegation raised concerns about taxation procedures, digital invoicing, administrative responsiveness, industrial duties, and other operational matters. The delegation also appreciated FBR’s recent initiatives concerning areas such as real estate taxation, Super Tax, and advance tax measures.

The FBR Chairman said the department is working to resolve genuine taxpayer issues while focusing on expanding the country’s tax base and bringing eligible sectors into the formal tax system. He further directed relevant officials to prioritise resolving income tax refund matters and ensure timely responses to taxpayer concerns in accordance with legal procedures.

The initiative reflects FBR’s broader efforts to strengthen collaboration with businesses, improve compliance, and create a more efficient taxation framework. Regular dialogue between tax authorities and industry representatives is expected to support a stable business environment and enhance confidence among investors and commercial stakeholders.

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CategoriesNews Property Taxes

Rawalpindi Excise Opens One-Window Centre to Speed Up Property Tax Services

RAWALPINDI: The Excise and Taxation Department Rawalpindi has launched a new One-Window Facilitation Centre to make tax-related services more accessible and efficient for citizens.

The facility will initially handle matters related to property tax, professional tax, and motor vehicle tax, allowing applicants to submit complaints and requests through a single point instead of visiting multiple departments.

Dedicated staff have been deployed at the reception area to receive applications and forward them to the relevant sections. Officials have been directed to resolve complaints and applications within two days, a move expected to reduce delays and repeated visits to the Excise office.

Director Excise and Taxation Rawalpindi Nauman Khalid will oversee the initiative and monitor the timely handling of public cases. The department says the system is intended to improve transparency, accountability and overall service delivery.

Plans are also in place to fully computerise the facilitation centre after the initial phase. The digital system is expected to improve record management, application tracking and monitoring of complaint resolution.

For property owners and businesses in Rawalpindi, the inclusion of property tax services is particularly significant, as it could simplify routine tax-related procedures and provide a more organised channel for resolving issues.

The initiative does not introduce any new property tax rates or changes in taxation policy. Instead, it focuses on improving the administrative process and making existing services more convenient for taxpayers.

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CategoriesNews Economy Investment Property Laws Property Taxes Real Estate Investment

Faulty Formula in FBR’s New Tax Return Form Is Overcharging Taxpayers, Warns PTBA

ISLAMABAD: The Pakistan Tax Bar Association has urged FBR to urgently fix a calculation error in its new income tax return form, warning that it is charging some taxpayers more than the law actually requires.

In a letter to FBR Chairman Rashid Mehmood Langrial, the PTBA said the fault lies in how the IRIS system handles “minimum tax,” a baseline amount already deducted or withheld on certain kinds of income that the law says should count in full toward a taxpayer’s minimum tax obligation.

Instead, PTBA says, IRIS splits a person’s income across different sources and taxes the remainder at an average rate, effectively piling an extra, unjustified demand on top of tax already paid.

To illustrate the unfairness, the bar association pointed out that two taxpayers earning the exact same income could end up owing different amounts, with the one who had tax withheld in advance actually paying more overall than someone who didn’t, purely because of how the system calculates things.

PTBA noted that the law already deals with a similar scenario correctly under the Final Tax Regime, where income taxed at source is treated as a separate block and excluded from normal-rate calculations. It says IRIS fails to make the same exclusion for minimum tax cases, meaning the same income essentially gets taxed twice.

The association has shared sample calculations with FBR to back up its claim and argued that building such formulas into the software amounts to interpreting the law itself, something it says neither FBR nor its technology arm, PRAL, has the authority to do, particularly since taxpayers have no option but to accept whatever the system generates.

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CategoriesNews Property Property Laws Property Taxes Real Estate Investment

Property Tax Windfall Signals Capital Flight Reversal, But Experts Warn of Real Estate Bubble Risk

Withholding tax collected from immovable property transactions climbed 57 percent in FY26, even as the government slashed advance tax on property purchases by half in the FY27 budget to encourage investment. The concession followed a marked surge in real estate prices, with plots in parts of Karachi reportedly multiplying in value within six months.

Analysts link the trend to reversed capital flight from the Gulf, particularly the UAE, as regional instability tied to the US-Iran conflict prompted funds once parked abroad to return.

Stronger remittance inflows and higher dollar liquidity from exchange companies have reinforced this shift, bolstering forex reserves and domestic liquidity.

However, concerns are mounting that this capital is settling into largely unproductive assets- vacant plots rather than industry or the stock market- which remains less attractive given its risk profile and a plateauing outlook.

Pakistan’s investment-to-GDP ratio continues to languish near record lows, with high taxation, weak industrial competitiveness, and regulatory hurdles cited as key deterrents to formal-sector investment. Some inflows reportedly still move through informal hundi-hawala channels, avoiding documentation altogether.

Officials are said to be exploring an investment vehicle for overseas Pakistanis to help finance $6.5 billion in public-private partnership projects, though critics argue such measures should have been introduced earlier.

A historical precedent is being cited: after Pakistan’s 1998 nuclear tests triggered a freeze on foreign currency accounts, banks led by HBL used incentive schemes to keep the resulting rupee liquidity within the formal banking system.

With regional tensions unresolved and capital inflows expected to persist, policymakers, the central bank, and commercial banks face renewed pressure to channel this liquidity into productive sectors or government securities before speculative pressures in real estate deepen further.

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CategoriesNews Developments Economy Property Taxes Real Estate Real Estate Investment

SECP Proposes REIT Overhaul: Threshold Cut to 65%, Vacant Land Investment Allowed

ISLAMABAD: The SECP has presented a draft package of amendments to the REIT Regulations, 2022, designed to release fresh capital and extend participation in the country’s real estate investment trust sector.

As per the proposed changes, the minimum threshold for real estate income and assets for REIT portfolios would drop from 75 to 65 percent, giving REIT Management Companies (RMCs) greater latitude to structure holdings and qualify a broader range of projects. Investment-based REITs would also gain the right to invest in vacant land and plots, subject to conditions still to be finalised.

The reforms would extend REIT access to new categories of capital, permitting group-level trusts and employee funds to invest in unlisted REIT schemes. Separately, the borrowing window available to RMCs from sponsors, directors and associated entities would be lengthened from 24 to 36 months, though existing unitholder-approval safeguards would remain unchanged.

To ease execution timelines, RMCs facing delays beyond their control could receive up to a one-year extension to list Rental and Investment-based REITs. The draft also opens a path for RMCs to acquire property directly from government entities through binding agreements, under conditions set by the regulator. A further clarification addresses Hybrid REIT Schemes, confirming that vehicles combining investment-based and rental components may earn and realize rental income during their holding period.

SECP Chairman Dr Kabir Ahmed Sidhu said the measures are intended to build a more enabling framework for the sector, capable of drawing in long-term capital and expanding the investor base.

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CategoriesNews Economy Property Taxes Real Estate

Islamabad Weighs New Local Tax Ahead of $1.2bn IMF Review

ISLAMABAD: The federal government has begun weighing proposals for a new local tax in Islamabad, contingent on the capital being granted autonomous unit status, as Pakistan and the International Monetary Fund (IMF) prepare to open talks this month on the fifth review of the ongoing loan programme.

According to sources, the proposed tax streams would fund basic facilities and administrative infrastructure in the capital, including hospitals, schools, colleges and welfare initiatives. The proposals are set to be discussed with the IMF delegation during the upcoming review, with approved measures to be incorporated into the FY28 budget. A final revenue target has yet to be determined.

The process begins with the Federal Board of Revenue (FBR) drafting the proposals, which then move to a dedicated tax subcommittee formed to examine mechanisms for an autonomous Islamabad. Following subcommittee approval, the proposals will go to a committee chaired by the Minister for Planning, before reaching Prime Minister Shehbaz Sharif for a final decision, subject to IMF approval.

The Ministry of Finance has directed all relevant ministries to compile data ahead of the review, with briefings expected to cover structural benchmarks and reform targets, including energy sector measures focused on circular debt in the electricity and gas segments.

The government is banking on a successful review to unlock the fifth tranche of the loan programme. Pakistan is expected to receive $1 billion under the tranche, plus a further $200 million earmarked for climate-related losses, bringing the potential total to $1.2 billion.

The broader push reflects a wider roadmap for Islamabad’s administrative autonomy, combining a new local tax and resource-distribution framework with IMF-guided reforms to strengthen the capital’s fiscal system.

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CategoriesNews Economy Property Taxes

FBR’s withholding tax on property sales climbs 56.9pc in FY26

ISLAMABAD: The Federal Board of Revenue (FBR) recorded a 56.9 percent increase in withholding tax (WHT) collected on the sale of immovable property during FY26, with receipts rising by Rs66.7 billion compared to the previous fiscal year, according to official data.

The property-sector levy, collected under Section 236C of the Income Tax Ordinance 2001, was one of five major withholding tax categories driving overall WHT growth during the year, alongside contracts, imports, dividends and salaries.

WHT collected on contracts under Section 153 rose 22.3 percent, adding Rs162.3 billion in FY26 the largest absolute increase among the categories. Import-related WHT under Section 150 grew 16.5 percent, generating an additional Rs69.5 billion.

Dividend-income WHT under Section 149 increased 18.5 percent, contributing Rs30 billion in incremental revenue, while WHT deducted from salaries rose 3.8 percent, adding Rs23 billion to collections.

In percentage terms, the property sector recorded the sharpest growth among the five heads, though contracts remained the largest contributor to incremental WHT revenue in absolute rupee terms.

The figures suggest withholding mechanisms continue to anchor FBR’s direct tax collection, with real estate transactions emerging as an increasingly significant revenue source alongside trade- and salary-linked deductions.

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CategoriesReal Estate Investment News Property Laws Property Taxes

FBR Yet to Notify Refund Mechanism for Section 7E, Super Tax Collections

ISLAMABAD: The Federal Board of Revenue (FBR) has yet to establish a mechanism to refund taxes collected under Section 7E, the deemed income tax on immovable property, and Super Tax under Section 4C, despite more than three months having passed since a formal request for such a procedure was made.

Waheed Shahzad Butt, Chairman of the LTBA Public Interest Litigation Committee, said he had written to the FBR Chairman, routed through Board Members, seeking a notified refund process for both levies. He noted that the FBR has not issued any guidance, prescribed an application format, or designated a forum for filing such claims.

The demand follows rulings by the Federal Constitutional Court (FCC), which struck down Section 7E as unconstitutional and void from inception, nullifying all notices and proceedings initiated under the provision. Introduced through the Finance Act 2022, the levy had applied a five percent charge on properties valued above Rs25 million, based on FBR-assessed fair market value.

On Super Tax, the FCC upheld the provision’s constitutional validity but excluded certain exempt capital gains from its scope, meaning the tax cannot be charged on the sale of immovable property held beyond the prescribed holding period, inherited property, or otherwise exempt income.

Butt said the FBR’s continued silence, despite binding constitutional rulings, has left taxpayers in an uncertain legal and financial position. He proposed allowing refunds as an adjustment against tax liability for Tax Year 2026 through the annual return, with field formations directed to process such claims uniformly rather than leaving the matter to individual Commissioners or Regional Tax Offices.

He cautioned that continued inaction exposes the FBR to further litigation, including complaints before the Federal Tax Ombudsman, as affected taxpayers seek redress for amounts they believe were unlawfully retained.

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CategoriesNews Property Property Taxes

New Property Tax Rules Announced by FBR for 2027

ISLAMABAD: The Federal Board of Revenue (FBR) has released updated guidance on how income from property will be taxed in Pakistan for Tax Year 2027, drawing on provisions of the Income Tax Ordinance, 2001, as amended through June 2026.

Under Section 15 of the Ordinance, rental income remains taxable under the head “Income from Property,” covering not just periodic rent but also forfeited deposits from failed property sale agreements.

However, the FBR clarified that income tied to leased plant and machinery, or payments for utilities and amenities bundled with a tenancy, will instead be classified as “Income from Other Sources.”

A notable feature of the framework is the fair market rent provision. Where actual rent falls below prevailing market rates, tax authorities may assess the property owner on the basis of fair market rent rather than the lower amount actually collected unless that market-rate value has already been taxed through the tenant’s salary.

Section 15A sets out permissible deductions, the most significant being a standard repair allowance equal to one-fifth of taxable rent. Property owners may also deduct insurance premiums, local taxes, ground rent, and profit paid on loans used to acquire or improve the property, among other itemised costs. Administrative and collection expenses are deductible but capped at 4% of chargeable rent.

The rules further address previously written-off unpaid rent that is later recovered, which becomes taxable in the year of recovery, and unpaid expense liabilities that remain outstanding three years after being claimed, which then become taxable income.

Separately, under Section 16, non-adjustable payments collected from tenants are not taxed immediately in full. Instead, they are treated as rental income spread evenly across ten tax years, with special provisions governing early refunds to outgoing tenants.

The FBR said the framework is intended to give property owners clarity on their tax obligations ahead of the new filing year.

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