FBR sets minimum profit rates for builders and developers in new tax scheme

The Federal Board of Revenue (FBR) has established minimum profit rates for builders and developers under the amended Finance Bill 2024 to facilitate the collection of a new tax on their taxable profits. 

According to a news report, the amended bill sets taxable profits at fixed rates of 10%, 15%, and 12% for different categories of construction and development activities.

According to the new Section 7F (tax on builders and developers) introduced in the Finance Bill 2024, a tax shall be imposed at the rates specified in Division I or II of Part-I of the First Schedule on the taxable profit of every person deriving income from the business of construction and sale of residential, commercial, or other buildings, as well as the development and sale of residential, commercial, or other plots.

For the purposes of this section, taxable profit is defined as 10% of gross receipts for specified activities, 15% for other specified activities, and 12% for further specified activities. 

This section clarifies that it applies solely to income from the gross receipts of these specified activities and not to income from any other source or under any other head of income.

Additionally, taxpayers cannot claim credit for any sum exceeding the taxable profit when explaining the nature and source of credited amounts or investments made. 

However, if taxable income under Section 9 exceeds the taxable profit under this section, taxpayers are allowed to take credit for such taxable income, provided they pay the tax rate specified in Division I or II of Part I of the First Schedule.

The provisions of this section do not apply to builders or developers established by an Act of Parliament, a provincial assembly, or by a Presidential Order, who are engaged in activities for the benefit of their employees or for the planning and development of housing and ancillary facilities in a specified or notified area.