Contractors, builders: receipt-based tax system to be reintroduced

The Federal Board of Revenue (FBR) is going to reintroduce receipt-based provisional assessment for the manufacturers, builders and other registered persons falling under section 36 of Income Tax Ordinance, 2001, it is learnt. According to sources, the builders, manufacturers, contractors and other registered persons falling under the definition of long-term contracts are exploiting section 30 of Income Tax Ordinance, 2001 to avoid paying income tax.
They said there are several lacunas in the aforesaid section, which need to be rectified to plug the revenue leakages. Therefore, the board is contemplating to reintroduce receipt-based provisional assessment for the registered persons falling under the definition of long-term contractors to close the doors for tax evaders. They said that under the repealed Income Tax Ordinance, the builders, manufacturers and contractors were provisionally taxed for a tax year during the pendency of a project as per provision of Circular No 2 of 1975 on the basis of receipts. And the final assessment was made on the completion of the project.
However, after promulgation of the Income Tax Ordinance, 2001, which envisages expenditure-based provisional assessment, the builders and developers are avoiding income tax payment, due to improper definition of long term contract in section 30, they added.
Keeping this in view, the Board is pondering to reintroduce the repealed receipt-based provisional assessment for the manufacturers, builders and other registered persons falling under section 36 with a clarification that this section becomes applicable whenever the registered person receive payment in advance.
Sources said that after reintroduction of receipt-based provisional assessment, the evaluation under this section would be provisional and the final assessment would be made on the completion of the project, wherein, the taxpayer would file the consolidated accounts of the project and would be liable/entitled for any resultant tax demand or refund.