Govt prepares simplified tax scheme for property developers, builders

The government has prepared a simplified tax scheme for property developers and builders, it emerged on Friday.

According to the draft of the Builders and Developers Special Procedures Rules 2019, “The said tax scheme shall apply to builders and developers, being an individual, an association of persons or a resident company who may opt to pay income tax and furnish return under these rules.”

Under the scheme, sources said the tax department will not ask about the investor’s source of income and account details, besides refraining from conducting raids on the business premises.

As per the draft, “The income computed and tax payable thereon shall be on a ‘project-by-project’ basis under the head ‘Income from Business.’ Tax payable thereon on annual basis (till the year of project completion) shall be computed at the rates mentioned. The said rates would be applicable to compute tax liability for the project for the tax years when the respective project is under construction. The annual tax liability on that basis shall be worked out as specified in the said rules.”

Under the draft rules, the estimated project life is not exceeding three years period and the board shall approve the estimated project life exceeding three years. A person opting for this scheme shall neither be entitled to claim any adjustment of withholding tax collected or deducted nor shall be entitled to claim any tax credit or refund under the ordinance, except for the payment made under these rules.

The rules said that an association of persons shall be liable to tax separately from the members of the association. The amount received by a member of the association in the capacity as a member out of the income of the association shall be exempt from tax. In case the builder or developer is a company, income subject to these rules shall be treated as a separate ‘class’ of income subject to these rules.

According to the draft, there shall be national (central) jurisdiction in respect of persons falling under this scheme and communication would be done through a prescribed automated system.

Every builder or developer shall be required to obtain and provide to the board in the prescribed manner a certificate from NESPAK to this effect: a) covered area in the project, and b) clarification of the kind of construction if so required. Any project with a covering area of less than 5,000 square feet would not require such approval.

The FBR has further specified that the examination of assessment under this scheme shall be limited to activities and purposes within this scheme.

The process, procedure, and reporting of the examination shall be prescribed. Where a person in respect of income is selected for examination under this scheme, the process of examination shall be undertaken not allowing any personal visit by any tax authority to the premises of the taxpayer, except with the approval of FBR.

No examination shall be undertaken after the expiry of five years from the date of filing the return for that tax year. No action under this rule will be undertaken prior to the approval of a committee constituted by FBR consisting of three persons including a representative body of builders or developers.

The rules said that a builder or developer who opts to be taxed under this scheme shall not be required to act as a withholding agent under any provision of the ordinance. In case a builder or developer is a company then the company shall withhold tax under section 153 of the ordinance on purchase of steel, cement and electrical equipment and on taxable salaries under section 149 irrespective of the legal status.

The FBR has proposed that the source of self-invested equity for any earlier year shall be accepted. The provisions of sections 177 and 214C shall not apply to builders and developers who opt to be taxed under this scheme.

Abid Nizami Law Associates (R)

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