Tax

Construction has emerged as a growth-oriented industry in Pakistan with its impact extending beyond providing framework for infrastructure, house demand and job creation. Even as we face 2025, it is key for stakeholders to have insights into the tax regime and, more specifically, with respect to GST rates applicable on property developers. Pakistan’s General Sales Tax (GST) or commonly known as sales tax on services, is the major guiding factor to control transactions in this domain. This blog discusses the complexities of GST on real estate in 2025, GST rates on construction services and other charges such as income tax on construction services in Pakistan and the service tax rate in Pakistan. Whether you’re a developer, investor or homeowner, these insights will enable you to plan constructively around changing fiscal policy. 

 

Overview of GST in Pakistan’s Construction Sector 

Pakistan’s Goods and Services Tax (GST) regime, administered by Federal Board of Revenue (FBR) and provincial authorities, covers supply of goods and services including in construction and real estate sector. The Pakistani system is a federal goods sales tax at 18% percent and provincial goods sales tax (GST) on services that has varied rates from 15-16%. For the construction industry, the GST focuses more on services such as land development, building construction, and property promotion. 

In 2025, most provinces (Islamabad, Sindh, Balochistan, Khyber Pakhtunkhwa) have a services tax rate of 15%, but Punjab will have a services tax rate of 16%. This rate is for construction services, and reduced rates or exemptions are applicable in case of essential activity or export purposes. The federal 2025-26 budget has incentivized the industry by providing certain incentives, such as lower withholding tax on property transactions, to spur the real estate sector and at the same time expand the tax net.” 

 

GST on Real Estate in 2025 

Real estate GST in 2025 is still focusing on transparency and affordability with no significant changes reported recently in the budgeting. Real Estate deals including plot sales, construction buildings and transfers of developed properties are liable to service tax on the service component. Imported construction materials are taxed under the federal sales tax system at an 18% rate, while local services are charged by the provincial GST. 

For real estate developers, the GST is imposed on development and marketing services that are typically subject to lower rates for housing promotion. In Islamabad Capital Territory, property developers are taxed on ‘services’ according to their land area and type of construction, with differing rates for affordable projects. The 2025 budget eliminated the Federal Excise Duty (FED) on real estate activities, which is likely to have a positive impact on developers’ costs and ultimately end-user pricing. 

Here’s a brief lowdown on whether the new system applies to real estate. 

Transaction Type	GST Rate (2025)	Notes
Land development services (plots)	15% (provincial)	Based on sq. yards; reduced for affordable housing
Building construction services	15-16%	Excludes land value; 18% on imported materials
Property promotion/sale services	Specific rates (e.g., Rs. 10-35 per sq. ft. for builders)	Varies by province and project size
Real estate transfers (resale)	0% (if completed)	No GST on ready-to-move properties

 

GST Rates on Construction Services 

GST on construction services is a provincial subject matter. Construction activities including civil work, subcontract and finish also come under the purview of provincial GST at the standard services tax rate of 15-16 percent in Pakistan. 

By 2025, The FBR has made compliance easier for contractors by making digital invoicing compulsory for all registered concerns. In the case of work-like contracts, he covers both labor and materials supplied through the contractor. There are discounted rates (e.g., 5% on health-related construction), but regular projects receive the full rate. 

Service Type	GST Rate (2025)	Province Variation
General construction (civil works)	15%	16% in Punjab
Sub-contracting (e.g., earthwork)	15%	Exemptions for govt. projects
Finishing services (painting, etc.)	15-16%	18% if materials imported
Affordable housing construction	Reduced (5-10%)	Incentives in budget 2025-26

 

Income Tax on Construction Services  

As GST applies to indirect taxes, in Pakistan income tax on construction services focuses on direct incomes, resulting in double compliance. For 2025-26, builders and developers have gone for a presumptive tax regime under Section 100D of the Income Tax Ordinance wherein gross receipts are taxed and not net income to keep it simple. 

Under this regime: 

• Construction and building sales: 10% of gross receipts 

• Development and sale of plots: 15% of developed plots sold. 

• Aggregate activities: 12% of gross receipts 

This subsequent final tax discharge is a project-by-project measure where advance payments are necessary at plan approval (5% of estimated liability). For non-opted entities, there are progressive slabs up to 35% and a minimum tax of 1% on turnover. 

There’s another layer of withholding taxes: 6% on contracts (12% for non-filers) and up to 4% in property sales. These rates were lowered in the 2025 budget (from, for example, 3% to 1.5% on mid-value properties), providing developers with needed cash flow relief. 

 

Construction Sector Guidance by CBM Consultants  

CBM Consultants supports developers and builders with GST by advising on appropriate tax classification, calculating the tax for construction work, preparing compliant invoices, and handling provincial sales tax registration. We also deal with GST return filing that means to maintain accurate project costing and documentation, for not paying penalties on time compliance. Guided by our professionals, developers can maximize tax planning, ensure they’re not unwittingly breaking any laws and keep cash flow problems to a minimum, all across different types of projects. 

 

Challenges and Opportunities  

Challenges fronting constructions, inflation and cost of materials, competition aggravated with 18% GST on imports. However, there are opportunities in 2025 with lower stamp duties for Islamabad (from 3% to 1%) and CGT simplifications (15% for filers on post-July 2024 acquisitions). Digital offerings from FBR such as the builder tax calculator help with compliance. 

On inputs, property developers can go as high as getting 15% back if they plan their GST early through registered suppliers and correct invoicing. Affordable segments have fewer effective prices for the homebuyer, resulting in increased market size. 

 

Conclusion 

Pakistan’s construction sector aims to contribute 7-8% to the GDP by 2025, learning GST rates on property developers and related taxes is a must. With 15–16% GST on Real Estate (services component) by the year 2025 and presumptive relief in income tax on construction services in Pakistan, it balances revenue considerations with incentives. Developers ought to take advantage of provincial differences in the service tax rate in Pakistan and check FBR’s websites for latest info. 

In Pakistan the word GST for smaller companies is a little confusing because many businessmen, tend to confuse it with the old provincial Sales Tax on Services as well as with the federal Goods and Service Tax (GST) on goods. GST on goods is administered by FBR as of 2025 while sales tax on services is collected by provincial revenue authorities (PRA, SRB, KPRA, BRA, AJK) assumes that this will also be handled regionally. But most SMEs must contend with both regimes, and the compliance burden is real. 

This ultimate guide breaks down what GST means for small businesses in Pakistan, the advantages it offers, how to register, how to file and some of the day-to-day practical issues the SME faces. 

 

What is GST in Pakistan? 

GST (Goods and Services Tax) is a federal sales tax that applies to the supply of goods in all Pakistan, including imports into such area, but excludes exports therefrom. GST is a value-added tax and is reduced at all ITCs of inputs to produce the product even though it lengthens the supply chain. 

Services are taxed at the Provincial Sales Tax level (which most often is referred to as GST). Rates vary: 

Sindh and Balochistan – 13 to 15% (based on the services) 

Punjab and Khyber Pakhtunkhwa – 16% 

AJK – 16% 

 

Who Needs Sales Tax Registration in Pakistan? 

You must register if: 

• Your annual sales of goods show PKR 100,000,000 or more (FBR GST) compulsory. 

• You have an annual taxable services turnover above the provincial thresholds (in general PKR 30 to 50 million depending on the province), obligatory. 

• You are operating in some sectors (perhaps restaurants, beauty salons, freight forwarders etc.) even below the threshold, compulsory. 

• You are opting for input tax credit, and you want to be included in the Active Taxpayer’s List (ATL). 

 

How to Register for GST? 

Registration of GST in Pakistan is a structured and digitalized process explained on the FBR portal. 

Step-by-Step Guide: 

Register in the FBR IRIS portal. 

Apply GST Registration for company or proprietorship. 

Submit documents that may be needed (ID Card, business bank account statement, rental agreement or ownership document). 

Upload biometric verification (if required). 

Once it is verified, you will download your GST certificate FBR from the IRIS profile. 

Upon registration, you can also learn how to check GST number in Pakistan online through FBR GST taxpayer portal or IRIS dashboard. 

 

Opportunities for Small Businesses Under the GST System 

Enhanced Credibility and Market Access 

It is through proper Sales Tax Registration that small businesses are included as documented economy. This is increasing brand value and enabling SMEs to join the larger corporate clients that demand a GST-compliant vendor. 

Input Tax Adjustments 

Registered SMEs may charge input tax credit on the purchases, which will markedly decrease their total business cost. This allows for competitive price points while still achieving profitable margins. 

Access to Government Tenders 

A huge number of government tenders require GST registered firms to undertake the projects. A valid GST certificate for FBR opens doors to new projects, partnerships, and opportunities. 

The Emergence of E-Commerce and Online Trading 

With the increasing popularity of online marketplaces, most platforms now mandate that sellers should have a GST registration. This is why GST for small business online is a proactive move for SMEs seeking broader audiences locally and internationally.  

 

Compliance Challenges Faced by SMEs 

With its advantages, the GST structure also comes with small business problems related to effective compliance: 

Scarcity of Knowledge about GST Rules and Percentages 

Knowing how to apply for registration with GST, the format and rates of invoice are some of the daunting challenges a new business often faces. Misunderstandings and misinterpretations result in notices, penalties, and exposure to audits. 

Complex Documentation and Records 

SMEs would have to keep comprehensive records of sales and purchases, tax invoices as well as reconciliation statements for reconciled against monthly GST returns. 

Frequent Changes in Regulations 

As changes are made to the GST rules by FBR, it is important for businesses to be informed. It’s tough for SMEs to do this without professional accounting help. 

Timely Filing of GST Returns 

The filing of GST needs intricate details and time-bound applications. Small businesses frequently find themselves at a loss regarding appropriate financial management and the right employees. 

 

Why SMEs Must Prioritize GST Compliance? 

For many small businesses, GST compliance becomes the foundation for: 

• Transparent financial reporting 

• Enhanced cash flow resulting from the claims for deletion of input tax 

• Higher probability of winning corporate business 

• Better access to e-commerce platforms 

• Consistently secure and protect your business for tomorrow’s growth 

Small and medium businesses not focusing on GST compliance are at risk of losing business opportunities and may be penalized by FBR as well. 

 

Practical Tips to Survive GST as a Small Business 

• Use an online accounting system which has FBR integrated. 

• Issue tax invoices properly (serial number, buyer NTN/CNIC mandatory above PKR 50,000). 

• File returns on time even if nil. 

• Keep digital records for at least 6 years. 

• You can retain a part-time tax practitioner. 

 

Conclusion 

GST for Small Businesses is not just about tax compliance, it’s a business strategy to enable SMEs in their growth journey, formalize businesses and become an integral part of Pakistan’s evolving economy. With basic knowledge of GST, lawful registration and responsible filing will reveal a treasure trove for small businesses in the form of new lucrative opportunities by adequately addressing the compliance hurdle.  

If you’re an entrepreneur starting or running a business in Pakistan, the one term you’ll come across quickly is GST. Goods and Services Tax (GST) previously called General Sales Tax in Pakistan is something you must understand if you’re a business owner or an accountant because it has a direct impact on your pricing, cash flow, compliance and profits.  

In this ultimate guide, we would go through everything a business owner in the country must know about GST in Pakistan from what does it stand for to registration, rates, filing and some of the practical tips. 

 

What is GST in Pakistan? 

GST is an abbreviation for Goods and Services Tax. In Pakistan, it is known as Sales Tax and is being regulated by the Sales Tax Act, 1990. But in all practical terms as well as on the FBR website, it is called GST. 

In simple terms, GST in Pakistan is an indirect value added tax which is imposed on supply of goods and services every time the transaction took place up to the level when it reaches the ultimate consumer and a credit can be taken for any input tax paid. 

Present Standard GST Rate (2025): 18% on almost all product supplies (some goods are zero-rated, whereas others attract lower rates like 0%, 5%, 10%, or the maximum rate of up to 25%). 

 

Types of GST 

Pakistan essentially follows a single GST system, but it is divided based on jurisdiction and nature of supply: 

Type	Authority	Applicability	Rate
Federal GST	Federal Board of Revenue (FBR)	Goods + Services (except those under provinces)	18% (standard)
Provincial Sales Tax on Services	Punjab (PRA), Sindh (SRB), Khyber Pakhtunkhwa (KPRA), Balochistan (BRA)	Services only (varies by province)	13–16% (mostly 15–16%)
GST on Goods	FBR	All taxable goods imported or supplied in Pakistan	18% (standard)
Zero-Rated Supplies	FBR	Exports, certain food items, medicines, etc.	0%
Exempt Supplies	FBR / Provincial	Certain essential items and services	Nil

 

Who Needs GST Registration in Pakistan? 

You need to get Sales Tax Registration (commonly known as GST Registration in Pakistan) if: 

• Your annual taxable turnover is equal to or more than PKR 100 million (for manufacturer) or in other cases, there is no threshold prescribed.  

• You’re an importer, exporter, distributor, reseller or dealer  

• You have made supplies that would be zero-rated (exports) 

• You voluntarily want to claim input tax adjustment. 

Even if your turnover is under the threshold, you should strongly consider registering if you wish to get back the GST that you pay on purchases (input tax credit). 

 

Step-by-Step Registration Process  

1st step: Go to FBR GST Portal:http://iris.fbr.gov.pk

2nd step: Click on “Registration” then “New Registration (Form STR-1)” 

3rd step: Fill in: 

• CNIC / NTN 

• Business details 

• Bank account (IBAN) 

• Photos of premises and details of rent agreement/ownership proof 

• Utility bills 

4th step: Submit the application.

5th step: Biometric verification to be available at the nearest FBR office or NADRA e-Sahulat franchise. 

6th step: Get GST Registration Certificate (Normally in 2–7 Days) 

7th step: Once registered, you will be provided with a Sales Tax Registration Number (STRN) which should be shown on all invoices. 

 

Key GST Compliance Requirements 

Upon registration, the businesses are subject to the following: 

Monthly GST Returns 

Lodge on IRIS monthly sales tax returns stating: 

Tax Paid on Purchases (GST paid) 

GST payable (Sales GST) 

Net payable tax (if any) 

Issuing Sales Tax Invoices 

All supplies subject to sales tax must be supported by a valid FBR-compatible invoice which indicates the GST charged. 

Proper Bookkeeping 

For the purpose of audit and compliance, such records on purchases of sales input tax and output tax need to be accurate. 

Timely GST Payments 

If filed late or payment is not received on time, it could lead to fines, interest fees, and an audit. 

 

CBM Consultants in Action: 

CBM Consultants assist businesses with their GST by making sure all regulations are met; returns are filed correctly and documented properly. We deal with GST registration, file monthly returns and records, calculate input/output tax amounts, do bookkeeping as per compliance. Our experts also advise businesses on GST regulations, provincial exceptions and audit necessities for less risky penalties and efficient structuring of tax operations. 

 

Common GST Mistakes 

• Not displaying STRN on invoices (penalty up to PKR 50,000)  

• Issuing fake or flying invoices 

• Not claiming legitimate input tax 

• Mixing personal and business expenses (input withheld) 

• Non or delayed filing of returns 

 

GST Checklist for Businesses 

• Once you commence taxable supplies, take your GST registration at once 

• Issue proper tax invoices displaying STRN, description value, and GST amount separately. 

• Retain full records of purchases and sales for 6 years minimum. 

• Reconcile input tax every month. 

• Monthly GST returns filing on or before the 15th (monthly) of next month. 

• Monitor budget changes (reviewed annually with possible rate changes every June). 

 

Conclusion 

It is fundamental to know the GST in Pakistan for each business whether it is small or large. Right from its full form to how to register on the GST portal, to be compliant is to run a business without hassles and needless expenses. Amid the constant changes in tax laws, keeping track of and being updated are essential to avoid penalties or making the most input tax benefits.