Listen to Brief Discussion on Budget 2026-27 and Its Impact on Real Estate Market

A ray of hope has been given to the property and construction sector by the federal government through new tax cuts in the Finance Bill 2026-27. Reduction in Withholding Tax (WTH) and abolition of Capital Value Tax (CVT) and deemed income tax will reduce the property transaction costs and revive the real estate sector. 

The Federal Government of Pakistan has announced major tax reliefs for property purchasers and sellers in the budget 2026-27 which was presented in the National Assembly of Pakistan on June 12, 2026. This step by the government is being welcomed by real estate experts and investors as it is hoped to provide a positive impact to the industry. These tax cuts were brought forward a few days after the Federal Constitutional Court (FCC) declared Section 7E unconstitutional in May 2026 which was followed by a separate FBR initiative in which the property valuations were reduced by 30–35% across major cities including Islamabad, Rawalpindi, and Lahore.  

Reductions in With Holding Tax (WTH)

The With Holding Tax (WTH) according to section 236C and 236K is the tax which is paid by both buyers and sellers on a property during a property transaction. The amount of WTH of course varies for both filers and non-filers where rates for filers are lower than non-filers. In the current budget the government has reduced the WTH for filers to a half of the previous rates.

• WithHolding Tax (WTH) for Sellers in Budget 2026-27

Previously the filers enlisted on the Active Tax Payer List (ATL) had to pay a WTH of 5.5 % on the sale of their property. In the Finance Bill 2026-27, this WTH has been reduced from 5.5% to 2.5%, which is half of the previous rate.  

This has resulted in a boost of confidence among property sellers as for any investor selling a property of Rs 20 million rupees who had to pay 1,100,000 rupees as WTH according to the previous rates would now have to pay only 550,000 rupees. 

• WithHolding Tax (WTH) for Buyers in Budget 2026-27

The WTH on property buyers has also been reduced to half as previously filers had to pay 2.5% of the property value as WTH while after the introduction of tax reduction they would have to pay 1.5% in terms of WTH. 

In simpler terms anyone buying a property worth 15 million rupees will have their WTH rates dropping from 375,000 to 187,500 rupees. 

Abolishment of Deemed Income Tax

In 2022, the government imposed a deemed income tax on secondary immovable property. This tax is applied to the income associated with a property irrespective of whether the property is generating any income or not. According to Section 7E the deemed income tax was about 1% of the market value of the property. It was among the most controversial property tax measures in Pakistan's recent fiscal history, drawing legal challenges and criticism for taxing hypothetical income that owners never earned. 

In May 2026, the Federal Constitutional Court (FCC) stated that the Section 7E was unconstitutional as it was illegal to tax property owners on income they were not actually earning. The government in the light of this ruling, in the Finance Bill 2026-27, has removed Section 7E from the tax code entirely thereby, abolishing deemed income tax completely. 

Abolishment of CVT on Foreign Assets 

The government has abolished the Capital Value Tax (CVT) for residents of Pakistan who have assets and properties in foreign countries. Before this the residents were required to declare and pay CVT on foreign wealth and real estate holdings. This step is taken to provide an incentive to overseas Pakistanis which is a major source of remittances.

The Finance Bill 2026-27 has provided great relief for the real estate sector through reducing WTH for filers up to half, abolishing the deemed income tax and CVT of foreign assets for Pakistan's. This step is aimed to revive the stagnant real estate sector and to facilitate property transactions and businesses.