New fixed tax regime for builders and developers

New fixed tax regime for builders and developers

KARACHI: The government has launched the incentive package for construction industry and introduced a fixed tax regime for builders and developers.

The Federal Board of Revenue (FBR) issued Tax Laws (Amendment) Ordinance, 2020, which was promulgated through presidential order to amend Income Tax Ordinance, 2001 in order to provide tax incentives.

According to commentary on the new ordinance issued by PWC A F Ferguson Chartered Accountants a new provision section 100D has been introduced in the Income Tax Ordinance, 2001, prescribing a scheduler based fixed tax regime for Builders and Developers on the basis of project area in respect of their income from sale of building or sale of plots, for tax year 2020 and onwards.

Necessary rules to that effect have been enacted by way of insertion of Eleventh Schedule to the Ordinance.

Similar to other scheduler based taxation provisions, all other provisions of the Ordinance (including recovery of tax not paid and matters connected therewith) not specifically covered under section 100D and Eleventh Schedule will remain applicable on Builders and Developers.

A similar fixed tax regime for builders and developers whereby tax was payable on the basis of area was also introduced though Finance Act, 2016 by way of sections 7C and 7D of the Ordinance, which was subsequently restricted through Finance Act, 2017 to only such Projects, which were initiated and approved during tax year 2017.

As such, builders and developers not covered by sections 7C and 7D were required to pay tax on net income basis.

The provisions of section 100D read with Eleventh Schedule to the Ordinance are applicable to all Builders and Developers, who opts for such taxation and are registered with the Federal Board of Revenue (FBR) on a Project-by-Project basis (hereinafter referred to as ‘eligible project/project’ as the context so requires).

For the eligible projects, the builder or developer will pay tax on the income from the sale of buildings or sale of plots, as the case may be, in respect of:

(a) a new project to be completed by September 30, 2022; or

(b) an incomplete existing project to be completed by September 30, 2022.

However, income, profits and gains earned up to tax year 2019 from incomplete existing projects will remain subject to the provisions of the Ordinance before the commencement of the Amendment Ordinance.

Any income of the builder or developer other than income subject to special tax regime of the Eleventh Schedule shall be subject to tax as per normal provisions of the Ordinance.

Computation of income and annual tax payable thereon at the fixed rates under the regime is to be made on a Project-by-Project basis as Final Tax.

Such income, being subject to final tax regime, shall not be chargeable to tax under any head of income in computing the taxable income.

No deduction for any expenditure, deductible allowance or set-off of any loss will be allowed. Tax credits are also not allowed against tax payable except for tax collected from the builder or developer under section 236K of the Ordinance after the commencement of the Amendment Ordinance on purchase of immovable property utilized in eligible projects. No refund of any taxes suffered is allowed.