Realty tax collection falls 29%

ISLAMABAD:

Income tax collection from the real estate sector dipped 29% to Rs28 billion in the first two months of this fiscal year, compared to Rs91 billion paid by Pakistan's marginalised salaried class, which is also hit by continued hikes in petrol prices.

Glaring and widening gaps in income tax payments by these two segments highlight the discrimination meted out to salaried persons, who could not muster support for the 50% tax cut that the realty sector got in the last budget from Prime Minister Shehbaz Sharif.

According to tax officials, income tax collection from the salaried class amounted to Rs91 billion during the July-August period of this fiscal year. It was higher by Rs6.3 billion, or 7.5%, compared to the same period last year.

In the budget, the government had given Rs52 billion in relief to the salaried class by reducing the tax rate by up to 3% and abolishing the 9% surcharge calculated on the basis of the highest tax rate of 35%. It had also increased the applicability limit of the maximum tax rate of 35% from Rs4.1 million to Rs7 million annually.

FBR data showed that income tax collection from the real estate sector decreased by 28% to Rs28 billion this fiscal year. During the first two months of the last fiscal year, the real estate sector had paid Rs39.4 billion worth of withholding taxes. In just two months, the real estate sector paid Rs11.2 billion less than last year despite an expected increase in property transactions.

In the budget, the government had reduced the advance tax on the sale and purchase of immovable property by 50%. On the sale of property, three slabs had been merged and a single rate of 2.75% was introduced against 5.5%.

On the purchase of property, the tax rate had been reduced from 2.5% to 1.25%. Because of this steep reduction, advance income tax collection on the sale of property reduced from Rs27 billion to Rs18.4 billion in two months – a Rs8.6 billion, or 32%, reduction on the sale of the properties.

Likewise, on the purchase of properties, income tax collection was reduced from Rs12.4 billion to Rs9.7 billion – a dip of Rs2.7 billion, or 22%, according to these statistics.

The massive reduction in collection from real estate has widened the gap between income tax payments made by the salaried class and the real estate sector. The salaried class's tax contribution was 225% higher than the income tax paid by the real estate sector.

The salaried class, like other middle- and lower-middle-income groups, is also adversely impacted by the government's decision to fully recover international oil prices, charge Rs80 per litre petroleum levy and Rs5 per litre climate support levy, and a daily fluctuation that is also causing a hike in fruit and vegetable prices.

Contrary to the impression given by tax authorities that collection from the retail sector has jumped, the data showed that withholding taxes paid by wholesalers and retailers have in fact reduced during the first two months of this fiscal year.

The combined withholding taxes paid by wholesalers and retailers amounted to Rs12 billion during the first two months of this fiscal year. These were Rs440 million, or 3.5%, less than the last fiscal year.

The salaried class paid Rs79 billion, or 658%, more taxes compared to retailers and wholesalers, showed the data.

FBR's overall tax collection for the current fiscal year has also started suffering, as it missed August's target by Rs27 billion and there was almost flat growth. Due to the poor outcome, FBR's top management has grilled the members and questioned their claims about increasing tax collection through enforcement.

This week PM Sharif told industrialists that the government had recovered Rs800 billion in the last fiscal year through enforcement alone without imposing any new taxes. However, this statement cannot be independently verified.

In the last fiscal year, FBR collected Rs13.01 trillion in taxes, which was Rs1.26 trillion, or roughly 11%, higher compared to the preceding year. This increase was mainly the result of autonomous growth in the economy and additional taxes imposed in the budget.

The super tax collection out of the Constitutional court ruling is also part of this collection, but it cannot be attributed to enforcement.

In the last fiscal year, nominal GDP growth was 10.8% while the increase in FBR's collection was 11%. FBR's tax-to-GDP also did not increase last year and remained stagnant at 10.3%.

The government had also imposed Rs312 billion worth of additional tax measures in June 2025 and their full impact was also not visible in the total collection.

However, digitisation, faceless processes, production monitoring and a more aggressive litigation posture have changed FBR's operating texture.

If enforcement had delivered an incremental Rs800 billion in addition to autonomous growth and the scored policy package, FBR's tax collection in the last fiscal year could have been over Rs13.8 trillion, but it did not happen.