IMF backed property tax reform to be unveiled in FY25-26
May 2025
Reading Time: 5 minutes
The International Monetary Fund (IMF) has once again set its sights on the real estate sector of Pakistan. IMF has been advocating harsher taxation measures for Pakistan’s real estate market for the past few years in an attempt to improve Pakistan’s narrow taxation base. As part of this push, it has now pushed the provincial governments of Pakistan to overhaul their property taxation system starting in the Fiscal Year (25-26).
Property tax in Pakistan is levied by the provincial government as per the 18th Amendment of the constitution. In provinces it takes the form of the UIPT (Urban Immovable Property Tax) which is levied and collected by the provincial government on the basis of an approach called the Annual Rental Value (ARV).
The ARV approach to property taxation calculates the rental income a property may generate over the course of a year, regardless of whether it is owner occupied or on rent, called Annual Rental Value. The UIPT is a specific %age of the Annual Rental Value set by the provincial government. For example, in Punjab UIPT is 5% of the Annual Rental Value of a property.
The IMF deems the ARV approach to taxation to be inefficient because it depends on assessments of ARV made by provincial authorities. These may be outdated and may result in foregone revenue with high value properties being taxed less than their actual worth.
To amend this situation, IMF recommends using an approach called capital-based taxation where the tax rate is based upon the market value of the property at the time of tax assessment. This approach uses regularly updated valuations for tax assessments, ideally resulting in full capture of taxation revenue. As per discussions, this new system is all set to be rolled out by all the provincial governments of Pakistan in the coming Fiscal Year (2025-26).
The success of the new tax system remains to be seen. Unlike ARV, the capital-based taxation system requires greater administrative oversight and management. Pakistan suffers from poor tax administration such as the current shortfall that its federal taxation agency, Federal Board of Revenue (FBR) is facing in meeting tax targets (more here).
While IMF may believe the change in taxation base for property tax will improve tax revenues, it is quite possible that these revenues may not materialize in the short-term. The success of these reforms will have to be gauged after a few years. Nevertheless, the tax system overhaul will be commencing in the near future.
Sources:
https://bloompakistan.com/new-imf-backed-property-tax-to-launch-in-all-provinces-fy26/
https://alsadatmarketing.com/all-provinces-to-roll-out-imf-supported-property-tax-in-fy26-budget/
