Pakistan’s real estate sector has received an estimated Rs34 billion in tax relief during the first four months of the current fiscal year, as its withholding tax contribution fell by 45%. In contrast, salaried employees paid Rs193 billion in income tax, highlighting the growing gap between the tax burden on fixed-income earners and property investors.
According to provisional tax collection figures, the real estate sector contributed Rs42 billion in withholding taxes between July and October, compared with a significantly higher amount during the corresponding period last year.
The decline comes after the government reduced advance income tax rates on property transactions by 50%, reversing an earlier policy aimed at discouraging speculative investment in the real estate market.
Tax Gap Widens
The difference between tax payments by salaried individuals and the real estate sector has widened considerably following the reduction in property taxes.
During the first four months of the current fiscal year, salaried employees paid approximately Rs193 billion in income tax, compared with Rs42 billion contributed by the real estate sector.
The salaried class therefore paid Rs151 billion more, with its contribution standing around 360% higher than that of the property sector.
Salaried employees had paid Rs179 billion during the same period last year, meaning their tax contribution increased by approximately Rs13.5 billion.
The figures have renewed criticism of the government’s taxation policies, with critics arguing that fixed-income earners continue to face a disproportionate burden while influential sectors receive concessions.
Property Tax Rates Cut
In June, the government secured the International Monetary Fund’s approval for a 50% reduction in real estate income taxes, alongside a fixed-tax arrangement for retailers.
Under the revised policy, the advance tax on property sales was reduced from 5.5% to a single rate of 2.75%, replacing three separate tax slabs.
Similarly, the advance tax on property purchases was cut from 2.5% to 1.25%.
The impact of these changes is visible in the latest collection figures. Advance income tax collected on property sales fell from Rs52.7 billion to Rs27.3 billion during July-October, representing a reduction of Rs25.4 billion, or 48%.
Tax collection on property purchases also declined from Rs23.1 billion to Rs14.7 billion, a decrease of Rs8.4 billion, or 37%.
Despite reports of increased property transactions and rising property values, the sector’s tax contribution has dropped sharply.
Retailers Remain Behind
Tax collection from wholesalers and retailers also showed limited growth during the first four months of the fiscal year.
Their combined withholding tax contribution stood at Rs24.7 billion, an increase of just Rs600 million, or 2.5%, compared with the same period last year.
Wholesalers paid Rs8.8 billion, down Rs571 million, or 6.5%. Meanwhile, retailers contributed Rs16.5 billion in income tax, an increase of Rs1.2 billion, or 8%.
The Federal Board of Revenue has introduced a fixed-tax scheme for retailers, but the arrangement has reportedly failed to bring a significant number of traders into the tax system.
The FBR has digitally mapped approximately 1.2 million small shopkeepers who were required to file tax returns but have not done so. However, Prime Minister Shehbaz Sharif has yet to give approval for action against them, according to the report.
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Salaried Class Under Pressure
The figures also highlight the growing contribution of salaried individuals to national tax revenues.
In the federal budget, the government announced Rs52 billion in tax relief for salaried employees. Measures included reducing tax rates by up to 3%, abolishing the 9% surcharge calculated on the highest tax rate of 35%, and increasing the annual income threshold for the maximum tax rate from Rs4.1 million to Rs7 million.
Despite these concessions, salaried employees remain among the largest contributors to income tax collection.
Their annual tax contribution increased from Rs391 billion before the start of the IMF programme to Rs629 billion by June 2026, reflecting a substantial rise over two fiscal years.
Professional services also contributed more to tax revenues during the July-October period. Their income tax payments increased by 17% to Rs111 billion, although some salaried individuals are also taxed under this category.
FBR Faces Revenue Shortfall
The declining contributions from some sectors have added to the Federal Board of Revenue’s revenue collection challenges.
The FBR recorded a tax shortfall of Rs95 billion during the first four months of the current fiscal year, while overall revenue growth remained at 6.5%.
This growth rate was less than half the prevailing nominal economic growth rate, pointing to weaknesses in revenue collection and tax enforcement.
Meanwhile, the combined tax contribution of retailers and the real estate sector stood at just Rs67 billion, which was Rs126 billion, or 189%, lower than the amount paid by salaried employees.
The figures have brought renewed attention to the government’s efforts to broaden the tax base, particularly in sectors such as real estate, retail and wholesale trade, while reducing the burden on salaried taxpayers.
