The Federal Revenue Board (FBR) has declared that construction companies and developers opting for the Fixed Tax Scheme (FTS) are not allowed to defer income tax on the purchase of building material except steel and cement.
In response to various developers ‘and builders’ questions, the FBR replied that constructors and developers are not allowed to withhold tax on plumbing, electrification, shuttering and other related facilities other than those offered by companies.
As per the FBR, constructors and developers opting for the FTS are only entitled to use tax credit for tax obtained under section 236A and 236 K of the Ordinance from such constructors or developers pursuant to the beginning of the Tax Laws Ordinance 2020, i.e. from 17 April 2020 on the purchase of immovable property used in a project registered under the scheme.
In the case of low cost housing built or approved by the Naya Pakistan Housing and Development Authority or under the Ehsaas Program, the fixed tax shall be reduced by 90 %.
To another question, the FBR replied that the respective levels defined for each category shall apply in the case of buildings having dual use i.e. both commercial and residential. Furthermore, in the event that the acquisition of parcels and the construction of buildings on the same is a single project, the respective rates for developers and builders shall apply to both.
The FBR explained that a builder or developer falling under this scheme shall pay advance tax in four equal installments equal to one-fourth of the tax liability for the year as calculated under the scheme.
According to the FBR, a builder or developer who opts for taxation under section 100D may deduct income and gains from such projects in up to 10 times the tax paid under the scheme.
The FTS refers to developers, who opt for the scheme by registering their project(s) with FBR. The word “Builder” means a person who is registered with the Board as a builder and engaged in building and disposing of residential and commercial buildings.
The word “Developer” means a person who is registered with the Board as a developer and engaged in land development in the form of plots of some sort, either for themselves or otherwise.
Furthermore the FBR said that Constructors and developers eligible for this FTS include individuals, a business or a specific organization.