Govt okays law to sweeten pot for construction sector

By News Desk

ISLAMABAD: The federal cabinet on Friday approved an ordinance to provide tax incentives to the construction industry, with the aim of helping daily-wage labourers whose incomes have been drastically curtailed by widespread virus lockdowns.

Through amendments in the Income Tax Ordinance 2001, Sales Tax Laws and Finance Act 1989, the incentives aim at promoting economic activities and generating employment opportunities in the country, the PM Office said.

The amendments In Income Tax Ordinance, 2001 mean that there will be no Fixed Tax Regime for builders and developers. The tax levied will be on per square foot or square yard basis. There will be no withholding taxes on materials, except for cement and steel. There will also be no withholding taxes on services except those rendered by companies.

Builders and developers can now take credit on income or profit from projects up to 10 times of the taxes paid. For low-cost housing projects approved by Naya Pakistan Housing and Development Authority (NAPHDA), taxes are further reduced by 90 per cent. This is applicable to new projects starting before December 31, 2020, as well as existing incomplete projects who opt for taxation under the scheme.

Both new and existing projects will have to get registered with Federal Board of Revenue (FBR) by filling out a prescribed form on the IRIS web portal. Existing projects would self-declare the percentage of completion and shall pay a fixed tax for the remainder of the project under the new fixed tax scheme.

Furthermore, there will be an exemption of tax on dividends paid to shareholders by builders and developers opting for taxation under the scheme.

Builders will also be exempt from Section 111 which covers unexplained sources of income. However, public office-holders, their benamidars, spouses or dependents, listed public companies and real estate investment trusts (REITs) are not exempt. Exemptions are also not available for any criminal proceeds derived from money laundering, extortion and terror financing.

Section 111 will also not apply to capital investments made in a new project in the form of money or land subject to certain conditions. If investment is made by a builder developer as an individual; in case of cash investment, money is deposited in a new bank account on or before the 31st December, 2020; in case of investment in shape of land, individual to have ownership title of the land at the time of promulgation of this amendment; project must commence by December 31, 2020 and get completed by September 30, 2022. The project shall be considered completed if In case of builder: Grey structure is completed by September 30, 2022.