The tax amendment ordinance 2020 was announced by PM in early April on the special incentive announced for the revival of construction sector.The amendment ordinance grants “the construction” sector a suitable modification in the Income tax ordinance, 2001 (ordinance no 2001) and gives several tax reliefs to developers and builders who completes their project before September 2022. Some of these reliefs are optional; those who decided not to opt for the new tax rates amendment by the new ordinance could continue to be taxed under standard tax regime.The ordinance is silent on any exemptions from sales tax and excise duty on materials used for construction and also there is no relief from capital gains tax on open plots or commercial property. Below are the other salient features of the amendment in ordinance 2001:
Special tax regime for builders and developers
From year 2020 and onwards, a developer or builder can opt for paying the tax under this special fixed regime under:
-> A new project should be completed by 30 September 2022 and existing project which is incomplete should also be completed by due date given.
-> This Fixed tax to be executed on per sqft and per sqyd basis.
-> There shall be no refund of tax deducted or collected under ordinance 2001.
-> Developers and builders on project should be registered on website of FBR as a single object company via its IRIS portal.
· On building materials, withholding tax to be exempted – except steel and cement.
· Withholding tax on purchase of services related to construction except those from companies, to be waived off.
· Fixed tax accountability for low housing scheme reduced to 90% under Naya Pakistan housing scheme.
· The dividends issued by the companies agitated to their shareholders are to be exempted from these withholding taxes.
Exemption on capital gain tax
The capital gain tax for selling personal property has also been exempted if:
· The apartment or flat area is less than 4,000 square feet.
· The area of house is less than 500 square yards.
Exemption on investment in new project
· The source of money used in Investment made by company or association of persons in a new project should not be investigated:
· If company is registered between 17-April2020 and 31 December-2020
· Capital investment is in form of money; such amount should be invested through cross banking instrument only before 31 December 2020.
· Capital investment is made in form of land, those land shall be transferred to developer or builder before 31 December 2020, added that investment should be as equity resource and not include borrow funded.
· Project should be completed by 30 September 2022, for builder the date on which grey structure is completed – the roof of the top floor laid as per plan approved.
Ø For developer, the date on which minimum 50% of the plots have been booked by buyer’s name – landscaping has been completed and at least 50% of the roads have been laid.
Advance tax
· Advance tax on sale of the property has been reduced to 5%, previously it was 10%.
Exemption on revealing income source
· According to the section 111 of amendment in ordinance tax, developer or builder would not be investigate about the source of income if:
· The transfer or deposit of money should be through new bank account before December 2020, investment should be in form of money.
· Shall have the ownership of land, its title should be registered as owners name, where investment is in the form of land.
· Person investing money in land should submit prescribed form on IRIS portal.
Exemption on purchasing a plot
· If plot is purchase before 31 December 2020, construction should be started before 31 December 2020 and completed before 30 September 2022.
· If building is purchased which is from registered project, purchase is made before 30 September 2020.
