Chartered accountants’ body calls for clearer rules and alignment of advance tax mechanism for builders and developers.
The Institute of Chartered Accountants of Pakistan (ICAP) has proposed amendments relating to taxation of builders and developers under Section 7F of the Income Tax Ordinance, 2001, in its budget proposals for 2026-27.
ICAP said that although Section 7F was introduced through the Finance Act, 2024 to establish a revised taxation framework for builders and developers, the current mechanism has become complex and difficult to administer.
According to the institute, the existing structure has created uncertainty regarding the determination of applicable tax liability within the real estate and construction sector.
ICAP explained that the Finance Act, 2023 inserted Section 147(5C) to govern advance tax payments based on per square foot or per square yard area. The rates for advance tax calculations were aligned with those prescribed in the Eleventh Schedule of the Ordinance for projects registered under Section 100D.
The institute noted that the taxation regime under Section 100D operated as a final tax regime, although the tax was collected quarterly in the form of advance tax.
However, ICAP pointed out that the Finance Act, 2024 introduced Section 7F for tax year 2025 onward, shifting the taxation basis for builders and developers from area-based taxation to a fixed percentage of sale value, effectively introducing a deemed income regime linked to sales value.
According to ICAP, the continued existence of Section 147(5C) in its present form following the introduction of Section 7F has created ambiguity and interpretational challenges.
To address these concerns, the institute recommended prescribing comprehensive rules explaining the method, basis and procedures for calculating taxable income and tax liability under Section 7F.
ICAP also proposed amendments to Section 147(5C) to align advance tax computation with the sale-value-based taxation regime introduced under Section 7F.
The institute said the proposed changes would ensure consistency between the advance tax mechanism and the revised taxation framework while reducing confusion and possible gaps in tax collection.
ICAP emphasized that the amendments are necessary to remove inconsistencies arising from overlapping legal provisions and establish a coherent taxation structure for builders and developers across Pakistan.
According to the institute, the proposed reforms would improve clarity, fairness and effective implementation of tax laws while promoting consistent taxation practices in the construction and real estate sector.
