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Tag: Tax Laws (Amendment) Ordinance 2020

This tag is related to Tax Laws (Amendment) Ordinance 2020. Pakistan Revenue is committed to provide updates on Tax Laws (Amendment) Ordinance 2020.

  • FBR exempts capital gain tax on sale of immovable properties

    FBR exempts capital gain tax on sale of immovable properties

    KARACHI: Federal Board of Revenue (FBR) has exempted capital gain tax on sale of immovable property under Tax Laws (Amendment) Ordinance, 2020.

    A new clause (114AA) has been inserted in Part I of the Second Schedule to the Ordinance, whereby exemption from tax on capital gains has been provided to a resident individual on sale of constructed residential property (a house having land area up to 500 square yards and a flat having an area up to 4000 square feet) used only for personal accommodation by the said individual, his spouse or dependents and for which any of the utility bills are issued in the name of such individual.

    The exemption shall not apply if it has been previously availed by such persons.

    No amendment has been, however, made in section 236C of the Ordinance, which implies that sale of the above properties will remain subject to collection of advance tax at 1% of sale consideration, unless the seller obtains an exemption certificate from the Commissioner.

    As per current provisions, capital gains on disposal of constructed property whose holding period exceeds four years is zero rated. Furthermore, in case such property is sold within one year of holding period, the amount of advance tax collected under section 236C at 1 percent of sale consideration is treated as minimum tax. It, therefore, appears that the purpose of this amendment is to provide an exemption from tax on capital gains on disposal of such constructed properties, which are held for less than four years.

  • Tax liability for 2020 to be discharged with return for builders, developers

    Tax liability for 2020 to be discharged with return for builders, developers

    KARACHI: Builders and developers are required to discharge tax liability for tax year 2020 with the tax return. Commenting on Tax Laws (Amendment) Ordinance, 2020, tax experts at PwC A Ferguson said that the annual tax liability for a project is to be computed by dividing the total liability of the project under the regime by the estimated life of the project in years (which shall not exceed 2.5 years).

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  • Filing return mandatory for builders, developers under incentive scheme

    Filing return mandatory for builders, developers under incentive scheme

    KARACHI: The filing of income tax return and wealth statement has been made mandatory for builders and developers under new ordinance to provide incentives to construction industry.

    According to Tax Laws (Amendment) Ordinance, 2020, builders and developers under the special tax regime are also required to electronically file annual tax returns (including wealth statements, wherever applicable) to be accompanied by evidence of tax payment.

    Such a tax return will be considered as an assessment order issued under section 120 of the Ordinance, according to commentary on the ordinance issued by PWC A F Ferguson.

    Tax liability for tax year 2020 is required to be discharged with the tax return.

    It further said that a tax return or declaration of a builder or developer is considered void if it is based on misrepresentation or on suppression of facts and all the provisions of the Ordinance will apply unless such misrepresentation is due to a bona fide mistake.

    No action is to be taken without providing an opportunity of being heard and without prior approval of Federal Board of Revenue (FBR).

  • 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.

  • Illicit money given amnesty through package to construction industry

    Illicit money given amnesty through package to construction industry

    ISLAMABAD: The government has given an amnesty to illicit money in case of investment made into to construction industry as no question of money to be asked under Income Tax Ordinance, 2001.

    Federal Board of Revenue (FBR) on Monday issued the Tax Laws (Amendment) Ordinance No.1 of 2020 after the approval from the president.

    The ordinance says that it was being promulgated, “whereas, the COVID-19 pandemic has created a worldwide crisis due to which industries, businesses, offices, service has been shut down in Pakistan and economic activity is at a standstill.”

    “And whereas, in order to protect and revive the economy of Pakistan, it is essential and critical to give incentives for revival of the construction industry with certain conditions as provided for in this ordinance.”

    Amendment has been made to Income Tax Ordinance, 2001 under which Section 111 shall not apply to the first purchaser of a building or a unit and capital investment made in a new project in the form of money or land.

    Section 111 of the Ordinance deals with concealed or undeclared money whereas harsh penalties under the ordinance have been outlined for undeclared money.

    According to the sub-Section 3 of Tax Laws (Amendment) Ordinance No.1 of 2020, the provisions of Section 111 shall not apply to capital investment made in a new project in the form of money or land, subject to following conditions, namely:

    (a) if the investment is made by a builder or developer being an individual –

    (i) in the form of money, such builder or developer shall open a new bank account and deposit such amount in it on or before the 31st day of December 2020; or

    (ii) in the form of land, such builder or developer shall have the ownership title of the land at the time of commencement of the Tax Laws (Amendment) Ordinance, 2020;

    (b) if the investment is made by a person in a project through a company or an association of persons;

    (i) such company or association of persons shall be single object (builder or developer) company or association of persons registered under the Companies Act, 2017 or the Partnership Act, 1932, as the case may be, after the date of commencement of the Tax Laws (Amendment) Ordinance, 2020 and on or before the 31st day of December, 2020; and

    (ii) the person shall be a member or shareholder of such association of persons or company, as the case may be;

    And if the capital investment is made,

    (i) in the form of money, such amount shall be invested through a crossed banking instrument deposited in the bank account of such association of persons or company, as the case may be, on o before the 31st day of December, 2020; or

    (ii) in the form of land, such land shall be transferred to such association of persons or company, as the case may be, on or before the 31st day of December 2020;

    Provided that the person shall have the ownership title of the land at the time of commencement of the Tax Laws (Amendment) Ordinance, 2020;

    (c) a person making an investment under the ordinance shall submit a prescribed form on IRIS web portal;

    (d) a person making an investment shall be wholly utilized in project; and

    (e) completion of the project shall be certified in the following manner, namely:

    (i) in case of a builder, the map approving authority or NESPAK shall certify that grey structure as per the approved map has been completed by the builder on or before the 30th day of September 2022; and

    (ii) in case of a developer

    (A) the map approving authority or NESPAK shall certify that landscaping has been completed on or before the 30th day of September 2022;

    (B) a firm of chartered accountants having an ICAP QCR rating of ‘satisfactory’, notified by the Board for this purpose, shall certify that at least 50 percent of the plots have been booked for sale and at least 40 percent of the sale proceeds have been received by the 30th day of September, 2020; and

    (C) at least 50 percent of the roads have been laid up to sub-grade level as certified by the approving authority or NESPAK.

    The sub-Section 4 of the latest ordinance said that the provisions of Section 111 shall also not apply to-

    (a) the first purchaser of a building or a unit of the building purchased from the builder in respect of purchase price of the building or unit of the building subject to the following conditions, namely:

    (i) full payment is made through a crossed banking instrument to the builder during a period starting from the date of registration of the project with the board under this section and ending on the 30th day of September 2022, in case the purchase is from a new project; and

    (ii) full or balance amount of payment is made through a crossed banking instrument to the builder during a period starting from the date of registration of the project with the board under this section and ending on the 30th day of September 2022, in case the purchase is from an existing incomplete project; and

    (b) the purchaser of a plot who intends to construct a building thereon, if

    (i) the purchase is made on or before the 31st day of December 2020;

    (ii) the full payment is made on or before the 31st day of December, 2020 through a crossed banking instrument;

    (iii) construction of such plot is commenced on or before the 31st day of December 2020.

    (iv) such construction is completed on or before the 30th day of September 2022; and

    (v) the person registers himself with the board on the online IRIS web portal.

    The sub-Section 5 of the latest ordinance said that sub-Section (3) or (4) apply, the value or price of land or building, as the case may be, shall be higher of clause (a) or (b) below:

    (a) 130 percent of the fair market value as determined by the board under sub-section (4) of Section 68; or

    (b) at the option of the person making investment, the lower of the values as determined by at least two independent valuers from the list of valuers approved by the State Bank of Pakistan.

    Sub-Section 6 of the ordinance stated that Sub-Section (3) and (4) shall not apply to –

    (a) holder of any public office as defined in the Voluntary Declaration of Domestic Assets Act, 2018 or his benamidar as defined in the Benami Transactions (Prohibition) Act, 2017 or his spouse or dependents;

    (b) a public listed company, a real estate investment trust or a company whose income is exempt under any provision of the ordinance; or

    (c) any proceeds derived from the commission of a criminal offence including the crimes of money laundering extortion or terror financing but excluding the offences under the ordinance.