Important features of the government’s new Construction Industry Package

The significant features of the new construction industry package are stated as follows

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In April, Prime Minister Imran Khan announced a tax amnesty scheme for the real estate sector. This scheme allowed people to invest their black money in the construction industry without disclosing the source of income. Following the National Coordination Committee (NCC) meeting last week, the Premier advised people to take full advantage of the incentives before the 31st of December 2020. No exemptions will be made afterward, due to international obligations like FATF.

Now, the government has announced a new incentive package for builders and developers to promote Pakistan’s construction industry. Following the announcement, the FBR’s spokesperson tweeted a thread, mentioning some of the package’s salient features and available incentives.

The significant features of the new construction industry package are stated as follows:

Fixed Tax Regime for Builders and Developers

  • Tax liability to be computed based on square feet/yard, to be paid in quarterly installments.
  • New projects, as well as existing incomplete projects, can opt for the scheme up to 31.12.2020.
  • The existing unfinished projects must self-declare the percentage of completion of the project on the relevant date.
  • Projects must be completed by the 30th of September 2022.
  • Exemption from requirement of withholding tax on the purchase of building material, except for cement and steel.
  • Exemption from requirement of withholding tax on acquisition of services relating to construction, except those from companies.
  • Permission to incorporate ten times of fixed tax paid as income in the books of accounts.
  • 90% reduction in fixed tax liability for low-cost housing.
  • Dividend paid by builder or developer companies shall not be liable to tax, and there shall be no withholding on the payment of these dividends.

Exemption from Section 111 on Investment in New Projects

Capital investment (money/land) made by a company/AOP in a new project shall not be probed for its source if the following conditions are met:

  • A single purpose company or AOP is registered between the 17th of April 2020 and the 31st of December 2020.
  • Money is invested through a crossed banking instrument up to the 31st of December 2020, or Land owned by the partner/shareholder is transferred to the Company/AOP up to the 31st of December 2020.
  • Money or Land invested is utilized in the project.
  • The project is completed by the 30th of September 2022.
  • In the builder’s case, the grey structure is completed (top roof as per plan is laid).
  • In the developer’s case, landscaping is completed, and all roads are laid up to sub-grade level. At least 50% of plots have been sold, and at least 40% of sales receipts have been received.

Exemption from Section 111 on Purchase of a Plot

For plots:

  • The plot is purchased before the 31st of December 2020 (complete payment is made through the banking channel before the 31st of December 2020).
  • Construction on such a plot is started before the 31st of December 2020 and completed before the 30th of September 2022.

For buildings:

  • Purchase is from a registered project, and the buyer is the first purchaser of the building.
  • Purchase is made before the 30th of September 2022 (complete payment is made through the banking channel).

Exemption from Section 111 is Not Available for:

  • Public officeholders,
  • Public companies, REITs, and companies whose income is exempt,
  • Proceeds of crime.

Additional clauses include:

  • One-time exemption of tax on capital gain on sale of personal accommodation of size up to 500 sq. yard house or 4000 sq. feet apartment.
  • For the import of plant and machinery, the construction sector has been given an industrial undertaking status.
  • The Advance tax on the auction of immovable property has been reduced from 10% to 5%. Moreover, the CVT on the immovable property and shares has been withdrawn in ICT.

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