Purchase of material: Builders opting for FTS not required to withhold tax: FBR

ISLAMABAD: The Federal Board of Revenue (FBR) has announced that builders and developers opting for the Fixed Tax Scheme (FTS) are not required to withhold income tax on the purchase of building material except steel and cement.

Responding to different queries of developers and builders, the FBR responded that the builders and developers are not required to withhold tax on services of plumbing, electrification, shuttering and other similar services other than those provided by companies.

According to the FBR, builders and developers opting for the FTS shall only be eligible for availing tax credit for tax collected under section 236A and 236K of the Ordinance from such builders or developers pursuant to the commencement of the Tax Laws (Amendment) Ordinance, 2020 (I of 2020), ie, from 17th April, 2020 onwards on the purchase of immoveable property utilized in a project registered under the scheme.

The fixed tax shall be reduced by 90 percent in the case of low-cost housing developed or approved by the Naya Pakistan Housing and Development Authority or under the Ehsaas Programme.

To another query, the FBR responded that in the case of buildings having dual usage i.e. both commercial and residential the respective rates specified for each category shall apply. Moreover, in case the development of plots and construction of buildings upon the same constitutes a single project, the respective rates for developers and builders shall both apply.

The FBR clarified that a builder or developer falling under this scheme shall pay advance tax equal to one-fourth of the tax liability for the year as determined under the scheme in four equal installments.

A builder or developer opting for taxation under section 100D shall be allowed to incorporate profits and gains accruing from such projects in up to ten times of the tax paid under the scheme, the FBR said.

The FTS is applicable to builders and developers, who opt for the scheme by registering their project(s) with FBR. The term "Builder" means a person who is registered as a builder with the Board and is engaged in the construction and disposal of residential and commercial buildings. The term "Developer" means a person who is registered as a developer with the Board and is engaged in the development of land in the form of plots of any kind either for itself or otherwise.

Builders and developers eligible for this FTS include individuals, a company or an Association of Persons, the FBR added.

Copyright Business Recorder, 2020