Govt launches fixed-tax scheme to woo builders, land developers

–Advance tax on auction of properties reduced to 5pc; sales tax on construction services in ICT brought to zero

–Incentive package to apply on projects started before end of 2020 

ISLAMABAD: The federal cabinet on Friday approved an ordinance giving legal effect to the incentive package for the construction industry in a bid to create employment opportunities in the country to mitigate the economic fallout of the coronavirus crisis.

Under the ordinance, a fixed tax regime is being introduced for builders and land developers and that there will be no withholding tax on the constructional material except cement and steel. The provision of services has also been exempted from withholding tax.

As per the ordinance, the tax has been reduced by 90 per cent for low-cost houses to be constructed under Naya Pakistan Housing Authority (NPHA).

This incentive package will be applicable for the projects to be initiated before the end this year as well as the ongoing incomplete projects, which will get themselves registered under this scheme. The builders and developers will have to get their new and ongoing projects registered with the Federal Board of Revenue through the IRIS web portal.

One time exemption has been given on capital gain tax for the house measuring 500 square yards and flat of 4000 square yards. The construction industry will be eligible to avail same kind of facilities available to other industries for the import of plant and machinery.

Advance tax on the auction of properties has been reduced to five per cent from 10pc. Sales tax on construction services in the Islamabad Capital Territory has been brought to zero on the pattern of Punjab. An exemption has also been given on capital value tax in the federal capital territory on the pattern of Punjab and Khyber Pakhtunkhwa provinces.

Prime Minister Imran Khan had announced the incentivised package for the construction industry earlier this month in order to increase employment opportunities in the country in the wake of coronavirus outbreak.

Following are highlights of the construction package released by the PM’s Media Office on Friday:

AMENDMENTS IN INCOME TAX ORDINANCE, 2001

Fixed Tax Regime for Builders and Developers:

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 10 times of tax paid; for low-cost housing projects by Naya Pakistan Housing and Development Authority/approved by NAPHDA, tax further reduced by 90pc; applicable to new projects starting before 31st of December, 2020 and existing incomplete projects who opt for taxation under this scheme; both new and existing projects would have to get registered with FBR (Federal Board of Revenue) by filing a prescribed form on IRIS web portal; existing projects would 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.

EXEMPTION FROM SECTION 111 (UNEXPLAINED INCOME SOURCE):

Public office-holder, his benamidar, spouse or dependents; listed public companies and real estate investment trusts (REITs) are not exempted, nor there would be any exemption available to “any criminal proceeds derived from money laundering, extortion and terror financing”.

Applicability of Section 111: The provisions of this section shall not apply to the capital investment made in a new project in the form of money or land subject to the conditions mentioned below: conditions for exemption from Sec 111 if an investment is made by a builder-developer as an individual.

In the case of cash investment, money is deposited in a new bank account on or before December 31, 2020. In case of investment in the shape of land, an individual must have ownership title of the land at the time of promulgation of this amendment.

A project must commence by Dec 31, 2020, and get completed by September 20, 2022. The project shall be considered completed if the grey structure is completed by Sep 30, 2022, in the case of a builder.

In the case of the developer: Landscaping completed and 50pc of the roads laid up to sub-grade level by September 30, 2022; 50pc plots booked for sale and 40pc proceeds received by September 30, 2022.

Conditions for exemption from Sec 111 for Investment through Companies or AOPs:

Such company or AOP shall be a new single object (builder or developer) entity, registered before Dec 31, 2020. In case the 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 the capital investment is in the form of land, such land shall be transferred to the new AOP/Company by December 31, 2020.

Conditions for exemption from Sec111 for first purchaser of buildings:

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:

The 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:

Not exceeding 500 square yards in case of houses and 4,000 square feet in case of flats

AMENDMENTS IN SALES TAX LAWS:

Advance tax on the 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. An exemption has also been given on capital value tax in the federal capital territory on the pattern of Punjab and Khyber-Pakhtunkhwa provinces.

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