FBR to start scrutiny of investment by builders, developers

KARACHI: The Federal Board of Revenue (FBR) will re-initiate scrutiny of money trail of investments in real estate sector by developers and builders after an elimination of the fixed tax regime in the budget for the next fiscal year of 2017/18, sources said on Monday.

The sources said the fixed tax regime restrained FBR from undertaking scrutiny of investments made by builders, developers or any others on their behalf.

“In the fixed tax regime, the builders and developers calculate their amount to be paid on a project and no further questions were asked by tax authorities,” an official at Regional Tax Office (RTO) Karachi said.

Finance Minister Ishaq Dar, in his budget speech, announced withdrawal of the fixed tax regime for builders and developers from July 1. According to the fixed tax regime, the builders and developers are bound to pay various taxes per square yard/foot, which are variable area to area. 

Minister Dar said builders and developers had committed to contribute around Rs28 billion, but so far their contribution was mere Rs110 million.  The Association of Builders and Developers argued that under the fixed tax regime around Rs150 million was deposited to national exchequer. The contribution would be around three billion rupees in the next two years, said the association.

Last year, the government introduced the tax regime for builders and developers before introducing reforms in taxation on property business. The FBR, after consultation with stakeholders, had announced the fixed tax regime with a hope that a huge amount would be invested in various projects, which would yield a significant amount of revenue.

Tax officials said the fixed tax regime provided a sort of amnesty to builders and developers because under such regime the tax authorities neither ask questions nor conduct audit of this industry.

The tax official said another major reason behind the withdrawal was introduction of benami laws, which are likely be implemented from the next fiscal year. 

The official said in the normal tax regime builders and developers would have to declare the name of investors. “Previously, the investors were taking advantage in the absence of benami laws,” the official said. “Now, in the normal regime investors could not make investment without declaring their identity.”

The RTO official said the builders and developers would have immunity from questioning for the tax year 2017 during which fixed tax was imposed. “Otherwise, the FBR can open cases for audit during the past five years,” the official added.