ISLAMABAD: In recognition of the vital role played by the construction and allied industries in the economic development of the country, the government has unveiled a set of incentives for builders and individuals engaged in new construction projects.
Under the new measures, builders will enjoy a tax relief of either 10 percent or Rs. 5 million on their business income for the next three years.
Similarly, individuals undertaking construction projects will receive a tax relief of 10 percent or Rs. 1 million for the next three years.
These tax benefits will apply to projects that commence after July 1, 2023.
To further stimulate growth in the construction industry, agriculture, and small and medium-sized enterprises (SMEs), the government had previously introduced a concessional tax rate for banks providing loans to these sectors from 2020 to 2023.
This scheme allowed banks to be taxed at a lower rate of 20 percent on the income generated through loans to these sectors, as opposed to the standard rate of 39 percent.
Although the concessional tax rate was originally set to expire this year, the government has proposed extending the scheme for an additional two years, until 2025.
Special Tax Regime for Land Developers
In addition to the tax incentives, the government has introduced a special tax regime for land developers, treating them as separate businesses to be taxed on a project basis.
Under this new system, land development businesses, including banks and insurance companies, will be subject to scheduler taxation.
The proposed minimum tax rate for land developers is set at 5 percent of turnover, by Section 113 (Turnover Tax).
This rate is significantly lower than the standard tax rate of 1.25 percent applicable to individuals, associations of persons (AOPs), and companies.
Additionally, a Project Advance Tax is proposed, whereupon the Approving Authority will collect an advance income tax of 7.5 percent of the fair market value of the land at the FBR Table value upon the first approval of the Layout Plan (LoP).
Besides, this amount will be adjusted over three years against the yearly income tax liability of the project.