The federal government is planning to promulgate a Tax Laws (Amendment) Ordinance, 2020 to implement the tax incentives package for the construction industry including immunity from disclosing the source of investment made in future projects to be executed by the developers and the builders.
Sources told Business Recorder that the Federal Board of Revenue (FBR) has drafted the Tax Laws (Amendment) Ordinance, 2020 proposing amendments in the Income Tax Ordinance, 2001.
A new schedule that is eleventh schedule (computation of profits and gains) has also been proposed in the Income Tax Ordinance, 2001 for computation of income and tax payable on project-by-project basis under the head "income from business" for developers and builders.
Under the draft law, a new scheme has been drafted for computation of profits and gains on developers and builders, and tax payable thereon, under the Income Tax Ordinance, 2001.
Moreover, detailed procedure has been provided for the developers and builders for availing time-bound exemption from Section 111 (un-explained assets or income) of the Income Tax Ordinance, 2001.
After legal vetting of the new law, the ordinance is expected to be promulgated in the next few days.
Under the draft Tax Laws (Amendment) Ordinance, 2020, the rate and computation of tax liability of projects of developers and builders in Karachi, Lahore and Islamabad have been worked out.
The rate and computation of tax liability in areas of Hyderabad, Sukkur, Multan, Faisalabad, Rawalpindi, Gujranwala, Sahiwal, Peshawar, Mardan, Abbottabad, and Quetta have also been mentioned.
According to the initial draft of the ordinance, the government would introduce special provisions relating to the developers and the builders.
The new provisions would be applicable on builders and developers opting to be assessed on their income, profits and gains from projects, which are set up between the date of promulgation of the ordinance and December 31, 2020; and completed on or before September 30, 2022.
Under the Tax Laws (Amendment) Ordinance, 2020, the income shall not be chargeable to tax under any head of income in computing the taxable income of the person; no deduction shall be allowable for any expenditure incurred in deriving the income.
The amount of the income shall not be reduced by any deductible allowance; the set off of any loss and no tax credit shall be allowed against the tax payable except credit for tax collected from the builder or developer under Section 236K collected after the date of promulgation of the ordinance on purchase of immoveable property utilised in an eligible project.
Under the draft law, the provisions of Section 111 of the Income Tax Ordinance, 2001 shall not apply to any shareholder or partner of a builder or developer in respect of any amount invested as capital in a builder or developer or land possessed or acquired by the builder or developer, or its partner in case of a limited liability partnership or in association of persons, if the amount is invested as capital or the land is transferred on or
before December 31, 2020 in the manner as prescribed and is utilised in a construction or development project in the specified manner.
Provided, that the exemption from the provisions of Section 111 shall also be available to the first purchaser of newly-constructed buildings of a project if the purchase is made on or before September 30, 2022, in the manner as prescribed.
The immunity would not be available to holder of any public office as defined in the Voluntary Declaration of Domestic Asset Act, 2018 or his benamidar as defined in the Benami Transactions (Prohibition) Act, 2017 or his spouse or dependents; or any proceeds derived from the commission of a criminal offence including crime of money laundering; terror financing but excluding offence of tax evasion.
The income tax exemption would be available on any income chargeable under the head "capital gains" derived by a resident individual from the sale of constructed residential property.
Provided that exemption under this clause shall apply if, at the time of sale, the residential property was being used for personal accommodation by the individual, his spouse or dependents; the land area of the property does not exceed 500 sq yards in case of a house and 4,000 square feet in case of a flat, and exemption under this clause has not previously been availed by the individual, his spouse or dependents.
Under the draft law, all persons registered under this scheme shall submit the registration form along with the irrevocable option to be assessed under this schedule in respect of each project on the IRIS through the FBR website by December 31, 2020 or within 30 days of setting up of project, whichever is earlier.
A builder or developer availing this scheme shall electronically file a return of income and wealth statement as may be prescribed accompanied with evidence of payment of due tax, which shall be taken for all purposes of the ordinance to be an
assessment order issued to the taxpayer by the commissioner to the extent of income computed under these rules.
The return and wealth statement filed may be revised without approval of the commissioner within 60 days.
About the withholding of tax, the draft law stated that a builder or developer shall not be required to withhold tax under Section 153 of the Ordinance on purchase of building material except steel and cement.
Provided that a builder or developer shall also not be required to withhold tax under Section 153 on services of plumbing, electrification, shuttering and other
similar and allied services other than those provided by companies.
Under the draft law, a builder or developer shall be allowed to incorporate its profits and gains in its books of accounts, which shall not be more than 10 times the amount of tax
In case, the profits and gains of a builder or developer are more than the amount allowed under sub-rule (1), the excess amount shall be chargeable to tax at rates specified in Division-I or Division-II of Part-I of the First Schedule, as the
case may be.
Any amount received by a member of an association of person or dividend
received in respect of profits and gains of a builder or developer to which sub-
rule (1) applies shall be exempt from tax.
Any amount received by a member of an association of person in respect of profits and gains of a builder or developer to which sub-rule (2) applies shall be income of the individual under the head income from other sources; and chargeable to tax under Division-I of Part-I of Second Schedule.
Any amount received as dividend in respect of profits and gains of a builder or developer to which sub-rule (2) applies shall be chargeable to tax under Section 5 of the ordinance.