All You Need to Know About Govt’s New Construction Industry Package

In a bid to promote the construction industry in Pakistan, the government has announced an incentive package for the builders and developers.

FBR’s spokesperson tweeted a thread in which he provided some of the salient features of the package and incentives available for the builders and developers.

The Government has announced incentive package for the builders and developers to promote the construction industry. The following thread of tweets explains the salient features of the package and incentives available for the builders and developers :( 1/19)

— FBR (@FBRSpokesperson) July 12, 2020

In April, the Prime Minister had announced a tax amnesty scheme for the real estate sector, allowing people to invest their black money in the construction industry without disclosing the source of income. While addressing a media following the National Coordination Committee (NCC) meeting last week, the Premier said that to take full advantage of the incentives before December 31, 2020, as afterward there will be no exemptions due to international obligations like FATF.

The following features are as follows:

Fixed Tax Regime for Builders and Developers

• Tax liability to be computed on the basis of 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 incomplete projects have to self-declare the percentage of completion of the project on the relevant date.
• Projects must be completed by 30 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.

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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 17 April 2020 and 31 December 2020.
• Money is invested through a crossed banking instrument up to 31 December 2020, or
• Land owned by the partner/shareholder is transferred to the Company/AOP up to 31 December 2020.
• Money or Land invested is utilized in the project.
• The project is completed by 30 September, 2022.
• In the case of the builder, the grey structure is completed (top roof as per plan is laid).
• In the case of the developer, 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% sale receipts have been received.

Exemption from Section 111 on Purchase of a Plot

For plots:

• The plot is purchased before 31 December 2020 (complete payment is made through the banking channel before 31 December 2020).
• Construction on such a plot is started before 31.12.2020 and completed before the 30 September 2022.

For buildings:

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

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Exemption from section 111 is not available for:

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

There is also a 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.  Moreover, the construction sector has been given the status of an industrial undertaking for the import of plant and machinery.

The Advance tax on the auction of immovable property has been reduced from 10% to 5%. The CVT on the immovable property and shares has been withdrawn in ICT as well.