Further to Amend the Income Tax Ordinance, 2001

This article outlines the further tax amendments law regarding Construction Industry to help you comprehend and amend the Income Tax Ordinance, 2001 for the terms specified hereunder, particularly now known as the Tax Laws (Amendment) Ordinance, 2020.

The President of the Islamic Republic of Pakistan, Dr. Arif Alvi, has indeed manifested his contentment illustrating that certain aspects exist exhibiting the need to implement prompt actions.

Furthermore, in context to Clause (1) of Article 89 of the Constitution of the Islamic Republic of Pakistan, the President is complacent to forge and proclaim the commandments to be further discussed in the article.

ELEVENTH SCHEDULE

Rules For Computation Of Profits And Gains Of Builders And Developers And Tax Payable Thereon

1. ELIGIBILITY


As per section 100D, these rules and regulations only apply to builders and developers.
2. SCOPE AND PAYMENT OF TAX


Under the term “Income from Business,” the payable tax and reckoned income should be centered upon a project basis. Ensuingly, as per the rates stated in Rule 11, the tax due should be assessed annually. 

The estimated project life should not exceed 2 years and 6 months, if the provided project originated during a period beginning from the date of this Ordinance notification to the 31st of December, 2020 and is concluded on or prior to the 30th of September, 2022. Moreover,  a year comprises a fraction of a year and the paid tax liability should be the ultimate tax.

3. FILING OF RETURN

The Registration Form, along with an irreversible option to be evaluated by December 31, 2020, or within 30 days prior to the time of launch, should be filed by anyone eligible under such scheme in accordance with each IRIS project via the FBR website.

A builder or developer employing this provision must file an income return and a wealth statement backed with proof of payment of due tax digitally, as it is to be considered an evaluation order of the taxpayers granted by the commissioner to the degree of the income determined according to these rules. 

Within sixty days, the return and wealth statement filed might be reviewed without the approval of the Commissioner.

4. CERTIFICATION

In context to the below cases, every builder or developer is required to file a certificate from an authorizing body or map approving authority or NESPAK in a specified manner to the Board.

a) If the total land area; covered area and saleable area; of the project to be implemented is in square foot or square yard.

b) Any other documents as per the order of the Board. 

5. PRELIMINARY TAX

An entity would be obliged to pay preliminary tax if eligible according to this provision, which is almost as much as the one-fourth of the annual tax liability as stated in Sub-Rule (1) of Rule (2) outlined in Section 147 of the Ordinance.

6. TAX WITHHOLDING

Under Section 153 of the Ordinance, a builder or developer is not liable to withhold tax on implying plumbing, electrification, shuttering, and other services associated with the procurement of building utensils other than steel and cement.

7. INTEGRATION OF PROFITS AND GAINS 

A builder or developer must be permitted to integrate his or her profits and gains in bank statements and the profits and gains are likely ten times more than the amount of tax paid under Rule (2). If the profits and gains are more than the amount permitted under Sub-Rule (1), the excess duty must be paid at rates stated in Division I or Division II of Part I of the first schedule.

Under Sub-Rule (1), any value or dividend accrued in accordance with the builder or developer’s profits and gains must be excluded from tax. Whereas, the one falling under Sub-Rule (2), must be charged tax under Division I of Part I of Second Schedule.

Moreover, a dividend accrued with regards to the profits and gains of a builder or developer under Sub-Rule (2) must be also charged tax under Section 5 of the Ordinance. 

8. MANNER OF EXEMPTION FROM SECTION 111 

Under this schedule, if the investments made in projects can’t be justified by an investor, these must be deposited into the designated bank account of the entity prior to or on the 31st of December 2020, and recover for the investment expenditures afterward. However, the investments made for the initial procurement should also follow the above procedure but deposited prior to or on the 30th of December 2020 and later on, pay the project owner via cross-cheque.

A shareholder to transfer land to a builder or developer must transfer at a cost as outlined in Section 76, and no capital gain must be considered to emerge. Moreover, a shareholder depositing in a designated bank account under Sub-Rule (1) or transferring the land under Sub-Rule (3), must file a dictated statement on the IRIS web portal.

NESPAK or a Valuer allocated by the Board must validate that all the investments of the project were actually utilised in the project prior to or during the wind-up of the project. Furthermore, they should also validate the project sale price during the sale of a finalized project if the buyer claims it under Section 111.

9. CHANGE OF OWNERSHIP PRIOR COMPLETION OF A PROJECT

Without any prior approval of the Board, no shareholder of a builder or developer could be permitted to switch ownership of an unfinished project except under some unusual circumstances and restrictions.

However, the change in ownership won’t be permitted if the expense made is even less than 50 percent of the total project cost.

Moreover, the Board might permit succession to legal heirs in the case of deceased shareholders. Furthermore, the Board might permit additional shareholders after the 31st of December, 2020, if not eligible for exemption provided under Sub-Section (4) of Section 100D. 

10. RATE AND COMPUTATION OF TAX LIABILITY

The above-stated rate of all the NAPHDA developed and approved projects of ‘Low-Cost Housing,’  must be minimized by 90 percent. Whereas, in the case of development of plots and construction of buildings on these plots, both rates must be applied.

Moreover, the higher rate must be applicable with respect to the ‘low-cost housing’ and all NAPHDA developed projects.