According to the “Sectoral Audit of Taxation in the Real Estate Sector” conducted by the Auditor General of Pakistan (AGP), more than 95% of builders and developers who benefited from the government’s April 2020 construction package, aimed at reviving the construction industry and boosting economic activity, failed to comply with the scheme’s conditions.
According to a news report, the package offered incentives such as tax exemptions, reduced taxes on construction materials, and amnesty for previously undeclared income and assets.
Tax amnesty schemes are often used by developing countries to broaden the tax base by encouraging non-compliant taxpayers to declare concealed incomes without fear of prosecution.
Despite availing these incentives, taxpayers largely ignored the conditionalities of the scheme, resulting in significant revenue losses. The AGP recommended that the Federal Board of Revenue (FBR) strengthen and enforce laws on benami (proxy) transactions to prevent individuals from hiding property ownership through nominees or proxies.
According to FBR data, 993 builders and developers registered under Section 100D of the Income Tax Ordinance and availed the tax amnesty, which requires documentation of immovable properties such as land and buildings. Section 144 mandates the fixed tax payable on the basis of project completion and area in square feet.
The audit revealed that 57% of taxpayers assessed at the Regional Tax Office (RTO) Islamabad were non-filers, highlighting weak enforcement and recovery of taxes. Cases from Punjab and Khyber Pakhtunkhwa had been clustered into RTO Islamabad as of June 2023, which impaired monitoring, assessment, and collection. To address these issues, 3,702 cases out of 11,243 were reassigned to their respective RTOs or Large Tax Offices (LTOs).
The AGP also noted problems with the Inland Revenue Information System (IRIS), where online computerised payment receipts (CPRs) often omitted taxpayer details such as name, CNIC/NTN, and address, rendering the challans invalid. Despite this, the system processed these receipts, allowing incorrect tax credit claims and facilitating benami transactions.
The audit underscores the need for stronger regulatory oversight to ensure compliance, prevent revenue loss, and curb misuse of the tax amnesty scheme in Pakistan’s real estate sector.
