The rates of sales tax and federal excise duty on construction materials, including existing rate of excise duty on cement, would remain intact till next federal budget and any change in rates of taxes for developers and builders would be considered from July 1, 2020.
Sources told Business Recorder that the Association of Builders and Developers of Pakistan (ABAD) held a meeting with the tax authorities of the FBR here at the FBR House on Monday to encourage the construction industry for making maximum investments in new projects.
At the same time, the FBR has also rejected fixed tax scheme for developers and builders and deferred the Builders and Developers Special Procedure Rules 2019, but assured them maximum facilitation at the level of field formations. The special procedure had been chalked out by the FBR in consultation with the developers and builders but later the industry opposed certain provisions of the scheme.
Chairman Federal Board of Revenue (FBR) Shabbar Zaidi has assured the developers and builders of maximum facilitation to encourage investment in real estate sector and heard their outstanding issues of fixed income tax regime, exemption of sales tax/excise duty on construction material, rationalization of valuation table of immovable properties and special exemption/tax relief to construction sector.
Under the facilitation measures for the developers and builders, separate zones/circles have been constituted at the level of field formations. The FBR is ready to give maximum facilitation to the developers and builders, but is not ready to give fixed tax scheme to them.
The ABAD referred to the Prime Minister Imran Khan's commitment to provide special tax relief and incentives to businesses/industries related to construction sector and support low-cost housing projects such as Naya Pakistan Housing Project (NPHP).
The first issue raised by the ABAD was the fixed income tax regime. Under proposed scheme, the income computed and tax payable thereon shall be on 'project-by-project' basis under the head of 'Income from Business.' Tax payable thereon on annual basis (till the year of project completion) shall be computed at the rates mentioned.
The said rates would be applicable to compute tax liability for the project for the tax years when the respective project is under construction. The annual tax liability on that basis shall be worked out as specified in the said rules.
The developer and builders requested the FBR for rationalization of valuation table of immovable properties. The mistakes in valuation table may be rectified at the provincial level by forming a committee consisting ABAD representative, representative of real estate agent and FBR nominee. After five years, 25% discount on valuation of built-up property has been proposed and after 10 years 50% discount on valuation of built-up property. The timing be calculated after sub-lease or sale deed.
It has been proposed that the valuation rates may be same for office & flats. The developer and builders have further requested the FBR that the period of Capital Gain Tax for built up properties may be reduced to three years and for open plots to five years.
They proposed the FBR that the cost of transaction may be reduced. Taxes i.e. stamp duty, CVT, registration charges and town tax may be reduced to 1 percent in total. First time buyer of property shall be exempted from all provincial taxes on transfer of property. Housing and construction is an industry and, therefore, it must not be subject to Provincial Service Tax.
To dispose of pending cases and litigation, the ABAD has requested the FBR that the Chief Justice of Pakistan may be requested to form special benches at Supreme Court and High court level to dispose of pending cases of land and construction within 60 days.
The FBR should encourage first time buyer of built up property up to Rs 30 million without asking wealth reconciliation. The federal government shall not charge any taxes on the transfer of the property from the first time buyer. The tax under section 236 (K) may not be collected in installments.
The FBR has been informed that affordable/low-cost housing is defined as a housing unit for a value up to Rs 3 million by the State Bank of Pakistan. Due to depreciation of Pak rupee and higher prices of properties in urban areas, the affordable/ low-cost housing may be defined up to value of Rs 5 million or Rs 850 per square foot.
To promote affordable/low-cost housing the construction materials should be exempted from sales tax/excise duty for affordable/ low-cost housing.
The ABAD has also proposed that all construction permits shall be issued through a portal. All departments issuing NOCs including the architect and engineer of the project shall be on the portal and within 07 days objections, if any, shall be issued on the portal simultaneously.
Once the objection are fulfilled all the departments shall be bound to issue required NOCs within 30 days failing which it would deemed to have been given. The builder or developer will be allowed to start his work as per the rules and regulation. Any violation committed during construction may be demolished.
For low-cost housing projects, subsidies financing is presently available only for widows and military personal, whereas it should be available to all buyers who are buying the units up to Rs 5 million. Rate of interest for the purchaser may be subsides for low-cost housing and may be fixed at 6 percent per annum. Foreclosure laws may be brought to the satisfaction of the financial institution in order to encourage them to finance housing units.
Builders have requested the government to allow builders and developers to sell their product internationally to Pakistani expatriates and earn foreign exchange for Pakistan. Dollars will be remitted to Pakistan through the banks.
The developers and builders alleged that the cartels in steel, tile and cement industry have made the price of the house out of reach of a common man. Action against cartelization must be taken by Competition Commission of Pakistan (CCP).
Funds from PSDP allocation may be utilized to develop infrastructure and provide utility services to new developed areas which are often located at the outskirts of the city. This will lessen the burden on the existing downtown and its utilities.
For construction permits, the number of NOCs required for approval may be reduced to maximum four. Presently there are more than 18 NOCs and it usually takes more than two-and-a-half-year to obtain construction permit.
Tax authorities informed that the government has finalized a simplified fixed tax scheme for developers and builders, offering a 90 percent reduction in tax for low-cost housing schemes, particularly the Naya Pakistan Housing Authority (NPHA).
The broad contours of the scheme, according to sources, include: (i) national (central) jurisdiction of developers and builders; (ii) simplified return form; (iii) income computation on 'project-by-project' basis; (iv) dispute resolution committee; (v) no requirement for developers/builders to operate as withholding agent; (iv) tax rate of Rs 210 per square feet for commercial builders in Karachi, Lahore, Islamabad, Hyderabad, Sukkur, Multan, Faisalabad, Rawalpindi, Gujranwala, Sahiwal, Peshawar, Mardan, Abbottabad, Quetta and other urban areas not specified; (vii) the tax rates shall be reduced by 90 percent for low-cost housing schemes; (viii) tax rate of Rs 210 per square feet for commercial developers (commercial plots) and requirement of independent certificate from NESPAK.
The rules say that a builder or developer who opts to be taxed under this scheme shall not be required to act as a withholding agent under any provision of the Ordinance.
In case if a builder or developer is a company then the company shall withhold tax under section 153 of the ordinance on purchase of steel, cement and electrical equipments and on taxable salaries under Section 149 irrespective of the legal status.