The federal cabinet, through amendments in the Income Tax Ordinance 2001, Sales Tax Laws and Finance Act, 1989, on Friday approved an ordinance to provide tax incentives to the construction industry.
The approval of ordinance/construction package is aimed at promoting economic activities and generating employment opportunities in the country, which is currently facing a lockdown due to Covid-19 outbreak.
Under the ordinance, a fixed-tax regime is being introduced for builders and developers. There will be no withholding tax on the construction material except cement and steel. Provision of services has been exempted from withholding tax.
As per the ordinance, tax has been reduced by 90 per cent for low cost houses to be constructed under ‘Naya Pakistan Housing Authority’. This incentive package will be applicable for the projects to be initiated before the end of this year as well as the ongoing incomplete projects, which will get themselves registered under the scheme. The builders and developers will have to get their new and ongoing projects with the Federal Board of Revenue (FBR) through IRIS web portal.
One-time exemption has been given on capital gain tax for the house measuring 500 square yards and flat of 4,000 square yards. The construction industry will be eligible to avail the same kind of facilities available to other industries for the import of plant and machinery. Advance tax on auction of properties has been reduced to 5 per cent from 10 per cent. Sales tax on construction services in the federal capital territory has been brought to zero on the pattern of Punjab. Exemption has also been given on capital value tax in the federal capital territory on the pattern of Punjab and Khyber-Pakhtunkhwa provinces.
Under the scheme, those investing this year in the construction sector will not be asked about sources of income. However, public office holders and their dependents will not be granted exemption from not declaring their sources of wealth.
* Tax levied on per square feet/per square yard basis
* No withholding taxes on materials except for cement and steel
* No withholding taxes on services except those rendered by companies
* Builders and developers can take credit of income/profit from project up to ten times of tax paid
* For low-cost housing projects by Naya Pakistan Housing and Development Authority/approved by NAPHDA, tax further reduced by 90%
* Applicable to new projects starting before December 31, 2020, and existing incomplete projects who opt for taxation under this scheme
* Both new and existing projects will have to get registered with FBR by filing a prescribed form on IRIS web portal
* Existing projects will self-declare the percentage of completion and shall pay fixed tax for the remaining project under the new fixed tax scheme
* Exemption of tax on dividends paid to shareholders by builders and developers opting for taxation under this scheme
Under the package, a public office-holder, his benamidar, spouse or dependents, listed public companies and real estate investment trusts, any criminal proceeds derived from money laundering, extortion and terror financing are not exempt from Section 111 (unexplained income source). The provisions of Section 111 will also not apply to capital investment made in a new project in the form of money or land subject to conditions mentioned below:
* In case of cash investment, money is deposited in a new bank account on or before the December 31, 2020
* In case of investment in shape of land, individual to have ownership title of the land at the time of promulgation of this amendment
* Project must commence by Dec 31, 2020, and get completed by September 30, 2022
* In case capital investment is in the form of money, it has to be transferred to new AOP/company through a crossed banking instrument by December 31, 2020
* In case capital investment is in the form of land, such land shall be transferred to the new AOP/Company by December 31, 2020.
Buildings may be purchased from new projects or existing projects which get registered in this scheme through a crossed banking instrument by September 30, 2022.
Conditions for exemption from Sec 111 for purchaser of a plot for the purpose of construction are: full payment is made through a crossed banking instrument by December 31, 2020; construction on such plot is commenced by December 31, 2020 and completed by September 30, 2020.
One-time exemption from capital gains on personal accommodation is available for land not exceeding 500 square yards in case of houses and 4,000 square feet in case of flats. Sales tax on construction services has been reduced to zero percent in ICT as already done by Punjab. Advance tax on auction of property has been reduced to 5% from 10%. CVT has also been exempted in ICT in line with recently announced exemptions in Punjab and KP.
