Special provisions relating to builders and developers
Previously, the government introduced The Tax Law (Amendment) Ordinance No. 1 of 2020 which was promulgated on April 19, 2020 in order to bring economic stability in the country and help to generate employment for the under-privileged segment of the society in these challenging times besides stimulating the economic activity in other allied industries of the Construction Sector.
The Finance Act has included the provisions of the Ordinance by the insertion of section 100D along with the Eleventh Schedule in order to support Ordinance legality and enabling it to become a part of law. The salient features of the Amendment Ordinance are as follows:
Final and fix taxation regime
The tax payable by a Builder or a Developer who opts to pay tax under this Ordinance shall be computed and paid on the income, profits and gains derived from the sale of buildings or sale of plots, shall be taxed under the fix rate of taxation as given in the newly added Eleventh Schedule to the Income Tax Ordinance, 2001 subject to some conditions given hereunder:
- a) The Taxation is on project by project basis. A new project or an incomplete existing project. The projects are to be completed by the 30th day of September, 2022;
- b) Provided that any income, profits and gains of a builder or developer of an incomplete existing project earned up to tax year 2019 shall be subject to the provisions of the Ordinance as were in
force prior to the commencement of the Tax Laws (Amendment) Ordinance, 2020;
- c) Provided further that any income of a builder or developer other than income, profits and gains subject to this section shall be subject to tax as per the provisions of the Ordinance;
- d) The estimated project life shall not exceed two and half years. Provided that in case of existing incomplete projects, the estimated project life shall be treated as three years from tax year 2020 through tax year 2022, and the tax payable shall be reduced by the percentage of completion up to the last day of the accounting period pertaining to tax year 2019 as declared in registration form. Provided further that tax liability of tax year 2020 shall be paid along with return; and
- e) Year includes fraction of a year; and the tax liability so calculated and paid shall be final tax.
FEATURES OF NEW REGIME WHICH INCLUDE ALLOWABLE DEDUCTION AND TAX CREDITS AGAINST TAX LIABILITY COMPUTED UNDER THIS ORDINANCE
(a) The income shall not be chargeable to tax under any head of income in computing the taxable income of the person;
(b) No deduction shall be allowable under this Ordinance for any expenditure incurred in deriving the income;
(c) The amount of the income shall not be reduced by any deductible allowance under Part IX of Chapter III;
(d) The amount of the income shall not be reduced by the set off of any loss;
(e) No tax credit shall be allowed against the tax payable under this Ordinance except credit for tax collected from the Builder or Developer under section 236A or 236K collected from the Builder or Developer after the commencement of this Law on purchase of immoveable property utilized in a project;
(f) There shall be no refund of any tax collected or deducted under the Ordinance. If the tax payable has not been paid or short paid, the said amount of tax may be recovered, and all the provisions of this Ordinance shall apply accordingly;
(g) Sections 113 and 113C shall not apply on the turnover, income, profits and gains of a builder or developer from a project; and
(h) A builder or developer opting for taxation under section 100D shall not be allowed to incorporate profits and gains accruing from such projects in excess of ten times of the tax paid under this Ordinance.
TAX AMNESTY ON INVESTMENT IN CONSTRUCTION SECTOR
The source of income of any person shall not be question under section 111 to capital investment made in a new project under this Ordinance in the form of money or land, subject to the following conditions, namely:
|Type of Investor||Conditions|
|a) If the investment is made by a builder or developer being an Individual||• 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;
• In the form of land, such builder or developer shall have the ownership title of the land at the time of commencement Ordinance, 2020; of the Tax Laws (Amendment).
|b) If the investment is made by a person in a project through a Company or an Association of Persons (AOP)||• Such company or association of person shall be a single object (builder or developer) company or association of persons registered under the Companies Act, 2017 (XIX of 2017), the Limited Liability Partnership Act, 2017 (XV of 2017) or the Partnership Act, 1932 (IX of 1932), as the case may be, after the date of commencement of the Tax Laws (Amendment) Ordinance, 2020 and before the 31st day of December, 2020; and
• 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:
o 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 or before the 31st day of December, 2020; or
o 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.
Additional condition to be met
- A person making an investment under clause (a) or (b) mentioned in previous page shall submit a prescribed form on IRIS web portal;
- The money or land invested under clause (a) or (b) mentioned in previous page shall be wholly utilized in a project; and
- Completion of the project shall be certified in the following manner, namely:
o 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
o In case of a developer:
▪ The map approving authority or NESPAK shall certify that landscaping has been completed on or before the 30th day of September, 2022;
▪ 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% of the plots have been booked for sale and at least 40% of the sale proceeds received by the 30th day of September, 2022; and
▪ At least 50% of the roads have been laid up to sub-grade level as certified by the approving authority or NESPAK.
TAX AMNESTY TO THE PURCHASERS
The source of income shall not be questioned from the purchaser of building or plot and the provisions of section 111 shall also not apply to purchasers who complies with the below mentioned conditions:
|Type of investor||Conditions|
|(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:||• 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
• 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.
|(b) The purchaser of a plot who intends to construct a building thereon, if||• The purchase is made on or before the 31st day of December, 2020;
• The full payment is made on or before the 31st day of December, 2020 through a crossed banking instrument;
• Construction on such plot is commenced on or before the 31st day of December, 2020;
• Such construction is completed on or before the 30th day of September, 2022; and
• The person registers himself with the Board on the online IRIS web portal.
The value or price of land or building, as the case may be for the investment and purchaser amnesties shall be the higher of clause (a) or (b) below:
130% of the fair market value as determined by the Board under sub-section (4) of section 68; or
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.
EXCLUSION FROM AMNESTY SCHEME
The amnesty of no question of source of income invested in real estate shall not be applicable to the following persons:
- 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 (V o f2017) or his spouse or dependents;
- A public listed company, a real estate investment trust or a company whose income is exempt under any provision of the Ordinance; and
- 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.
Notwithstanding anything contained in the section 100D or the Eleventh Schedule, where a return or declaration has been made through misrepresentation or suppression of facts, such return or declaration shall be void and all the provisions of this Ordinance shall apply:
Provided that no action under this sub-section shall be taken if such misrepresentation has been made on account of a bona fide mistake:
Provided further that no action under this sub-section shall be taken without providing an opportunity of being heard and without prior approval of the Board.