1. Exemptions from Capital Value Tax (CVT)

Through this Ordinance, CVT which was levied vide the Finance Act, 1989 shall cease to apply from the date of commencement of this Ordinance.

2. Fixed Taxation regime introduced for builders and developers

The income or profits derived by any builder from the sale of building and developer from the sale of plots shall be taxed under fixed tax regime, at the option of the builder or developer. Fixed tax will be levied on the basis of area in respect of the new or existing projects to be completed on or before September 30, 2022.

The income shall not be included under any head of income and no deduction shall be allowed including expenditure incurred, zakat, profit participation contributions, workers’ welfare contributions and carry forward losses etc.

Fixed tax rates are tabulated below:

Insert table of rates

Annual tax liability shall be calculated as per the rates above as follows:

Project life shall be estimated at two and a half years for new projects and three years for existing project commencing from tax year 2020.

Annual fixed tax shall be paid in equal quarterly installments in advance and no adjustment will be allowed except tax deducted under section 236 K of the Income Tax Ordinance, 2001.

Provisions of minimum tax and alternate tax shall not apply and no refund shall be claimed by builder or developer in case of unadjusted tax.

For existing incomplete projects, fixed tax shall be paid on remaining project as reduced by the percentage of completion of project up to tax year 2019.

Income earned prior to the promulgation of Tax Laws (Amendments) Ordinance, 2020

Any income or gains earned up to Tax year 2019 in respect of existing projects shall be subject to the provisions of the Ordinance inforce before the date of promulgation of Tax Laws (Amendments) Ordinance, 2020.

If any builder or developer derives an income subject to this section shall be subject to the provision of Tax Laws (Amendments) Ordinance, 2020.

3. Incentives to individual builders and developers on investments

Section 111 of the Income Tax Ordinance, 2001 requires explanation about the unexplained source of income. Whereas, this Ordinance provides exemption of Section 111 to individual builder or developer who made capital investments subject to following conditions:

Investment in the form of money

Builder or developer must open a new bank account and transfer the money into the same on or before December 31, 2020

Investment in the form of land

Where investment is made in the form of land, land must be in his name at the time of promulgation of this Ordinance.

Price of land shall be higher of:

• 130% of the fair market value as determined by the Board
• 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.

Additional conditions

• Investment made (whether land or monetary) shall be wholly utilized in the project
• An investor shall submit a prescribed form on IRIS portal.
• In case of builders, grey structure of the building as per approved plan must be completed on or before September 30, 2022 and appropriate certification shall be submitted. For the purpose of provisions of this ordinance, NESPAK or map approving authorities shall certify the same.
• In case of developers, NESPAK or map approving authorities shall certify that
• Landscaping has been done on or before September 30, 2022; and
• At least 50% of roads has been laid to sub-grade level
• Additionally, 50% of the total plots must be booked and 40% of the receipts in respect of such bookings must be received on or before September 30, 2022. For this purpose, certificate shall be obtained from ICAP’s QCR rated firm of Chartered Accountants notified by the Board.

4. Incentives to investors in newly registered AOP and company operating as builder or developer

When an investment is made in form of money or land by a person through company or AOP, then such person is entitled to exemption from section 111 of the Income Tax Ordinance, 2001, if and only if he or she meets the following criteria:

• AOP or company must be formed between promulgation of this Ordinance i.e. April 17, 2020 and December 31, 2020 and must be a single object i.e. builder or developer
• The person shall be a member or shareholder of such AOP or company, as the case may be
• Capital investment made in the form of money must be invested through crossed banking instrument on or before December 31, 2020
• Capital investment made in the form of land must be transferred in the name of company or AOP on or before December 31, 2020. Provided that the person must have ownership title of that land before the promulgation of this ordinance.

Price of land or building shall be higher of:

• 130% of the fair market value as determined by the Board
• 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.

Additional conditions

• Investment made (whether land or monetary) shall be wholly utilized in the project
• An investor shall submit a prescribed form on IRIS portal.
• In case of builders, grey structure of the building as per approved plan must be completed on or before September 30, 2022 and appropriate certification shall be submitted. For the purpose of provisions of this ordinance, NESPAK or map approving authorities shall certify the same.
• In case of developers, NESPAK or map approving authorities shall certify that
• Landscaping has been done on or before September 30, 2022; and
• At least 50% of roads has been laid to sub-grade level
• Additionally, 50% of the total plots must be booked and 40% of the receipts in respect of such bookings must be received on or before September 30, 2022. For this purpose, certificate shall be obtained from ICAP’s QCR rated firm of Chartered Accountants notified by the Board.

5. Incentives to first purchaser of the buildings or a unit

Exemption from the provisions of section 111 of the Income Tax Ordinance shall be available to the first purchaser of the building or unit if the following criteria is met:

In case of new project – if full payment is made through a crossed banking instrument between the date of registration of the project with the Board and September 30, 2022.

In case of an existing incomplete project – if full or balance amount is paid through a crossed banking instrument between the date of registration of the project with the Board and 30 September 2022

6. Incentives to purchaser of plot who intend to construct building

Exemption from the provision of section 111 of the Income Tax Ordinance, 2001 to the person who purchase a plot and intends to construct a building on that plot if the following criteria is met:

• the purchase is made on or before December 31, 2020
• full payment is made on or before December 31, 2020 through a crossed banking instrument
• construction on such plot is commenced on or before December 31, 2020
• construction is completed by September 30, 2022
• the person registers himself with the Board on the online IRIS portal

Price of plot shall be higher of:

• 130% of the fair market value as determined by the Board
• 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.

7. Exclusion from exemptions under section 111

Exemption from provisions of section 111 is not available for the following:

• holder of any public office as defined in the Voluntary Declaration of Domestic Asset Act 2018 or his benamidar as defined in the Benami Transactions (Prohibition) Act, 2017 (V of 2017) or his spouse or dependents
• a public company, a real estate investment trust and a company whose income is exempt under any provision of the Ordinance 2001
• any proceeds derived from the commission of a criminal offence including crime of money laundering, extortion or terror financing but excluding the offences under tax laws.

8. Exemption of Dividend income & WHT under section 150

If a company being a developer or builder paid any dividend out of its gain derived from a project, then such dividend shall be exempt from income tax and the provisions of section 150 shall not apply to dividend paid by a builder or developer being a company out of its profits or gains as withholding agent.

9. Exemption of Capital Gain Tax for individuals

A new clause 114AA has been inserted in Part I of Second Schedule to the Ordinance 2001 whereby capital gains derived by a resident individual from the sale of constructed residential property has been declared exempt subject to the following conditions:

• the residential property was being used for personal accommodation by the resident individual, his spouse or dependents and for which any of the utility bills is issued in the name of such individual;
• the land area of the property does not exceed 500 square yards in case of a house and 4,000 square feet in case of a flat;
• exemption under this clause has not previously been availed by the individual, his spouse or dependents

10. Incentives for projects approved by NAPHDA

Tax liability on income or profits of the projects approved by NAPHDA or under Ehsaas Program shall be reduced by 90%.

11. Exemption from withholding of taxes from payments under section 153

The provisions of section 153 shall not apply to builders and developers on:

• Purchase of building material other than cement, steel & purchase of material from companies
• on services of plumbing, electrification, shuttering and other similar and allied services other than those provided by companies

12. Registration and filing

A registration form along with the irrevocable option to be assessed under this Schedule in respect of each project shall be submitted through FBR website by all builders and developers and their shareholders or partners or joint venture partners of builder or developer on or before December 31, 2020

 A prescribed registration form shall include details of a member or shareholder of a builder or developer, as the case may be. Provided that a developer who is also a builder in case of a project shall submit two separate forms for registration as a developer and as a builder.

A builder or developer availing this scheme shall electronically file a return of income and wealth statement. 

13. Certification

This Ordinance binds every builder or developer to submit to the Board, a certificate from approving authority or map approving authority or NESPAK to the following effect:

• ‘total land area in square yards
• covered area in square feet
• saleable area in square feet
• Type (commercial, residential or industrial) of saleable area or the total land area.

14. Restriction on incorporation of profits

Builder or developer who opt fixed taxation for the purpose of computation of income tax liability, is not allowed to incorporate profit or gains derived from the project in excess of ten times of the tax paid.

15. Restriction on change in pattern of ownership

A shareholder or a partner of a builder or developer shall not be allowed a change in ownership of an incomplete project

Exception

where at least fifty percent of the total project cost, as certified by ICAP QCR rated firm of chartered accountants as may be notified by the Board, has been incurred till the date of change of ownership.

The succession to legal heirs in case of deceased shareholder or a partner shall be allowed.

The additional partners or shareholders in a builder or developer after the thirty first of December, 2020 may join but additional partners or shareholders shall not be eligible for exemption provided under sub-section (4) of section 100D i.e. first purchaser incentive and purchaser incentive who intends to construct

16. Builders or Developers included in the definition of industrial undertaking

From the 1^st day of May 2020, any person directly involved in the construction of buildings, roads, bridges and other such structures or the development of land, to the extent and for the purpose of import of plant and machinery to be utilized in such activity, subject to such conditions as may be notified by FBR, has been included in the definition of industrial undertaking as provided in Section 2(29C) of Income Tax Ordinance.

This means that tax on import of raw material, plant, machinery, equipment and parts will be adjustable and not minimum under section 148. Reduced rates of duties and sales tax as are applicable to industrial undertakings will also be available to such builders.