Mohsin Siddiqui (Chief Reporter)
The Federal Board of Revenue (FBR) has introduced a significant amendment in the Finance Bill 2024, focusing on the taxation of builders and developers. This amendment aims to ensure that a new tax is imposed on the taxable profits of individuals and entities involved in the construction and sale of residential, commercial, and other buildings, as well as the development and sale of residential, commercial, and other plots. This move is expected to streamline tax collection and increase revenue from the real estate sector.
Under the amended Finance Bill 2024, the FBR has set specific taxable profit rates for developers and builders. These rates are crucial for determining the amount of tax to be collected on their profits. According to the new section 7F, titled “Tax on Builders and Developers,” the taxable profits are fixed at 10 percent, 15 percent, and 12 percent of gross receipts from their respective activities.
The amendment specifies that a tax will be imposed at the rate outlined in Division I or II of Part-I of the First Schedule. This applies to every person deriving income from the construction and sale of residential, commercial, or other buildings, as well as the development and sale of residential, commercial, or other plots. The taxable profit will be 10 percent of gross receipts for certain specified activities, 15 percent for others, and 12 percent for additional specified activities.
To clarify, these provisions will only apply to income generated from the gross receipts of the specified activities. They will not be applicable to income from any other sources or under any other heads of income. This ensures that the tax is precisely targeted at the intended business activities within the real estate sector.
The FBR has also addressed scenarios where taxpayers attempt to explain the nature and source of credited amounts or investments by referring to income subject to this new tax. In such cases, taxpayers will not be allowed to claim credit for any sum exceeding the taxable profit. However, if the taxable income under section 9 exceeds the taxable profit under this section, the taxpayer will be entitled to claim credit for the taxable income, subject to the payment of tax at the specified rates in Division I or II of Part I of the First Schedule.
It is important to note that the provisions of this section do not apply to builders or developers established by an Act of Parliament, a provincial assembly, or a Presidential Order. This exemption is granted to those engaged in activities for the benefit of their employees or in the planning and development of housing and ancillary facilities in specified or notified areas.
The introduction of this new tax regime for builders and developers under the amended Finance Bill 2024 is expected to have significant implications for the real estate sector. By fixing the taxable profit rates at 10 percent, 15 percent, and 12 percent, the FBR aims to create a more transparent and efficient tax system. This will not only enhance revenue collection but also promote compliance among builders and developers.
Builders and developers must now carefully evaluate their taxable profits and ensure compliance with the new tax rates. The FBR’s move is part of a broader effort to broaden the tax base and improve the overall efficiency of the tax collection system. By targeting the real estate sector, the FBR aims to tap into a significant source of revenue that has often been challenging to regulate.
For industry stakeholders, understanding the implications of this amendment is crucial. Builders and developers need to align their financial reporting and tax planning strategies with the new requirements to avoid any potential penalties or legal issues. The FBR’s focus on the real estate sector underscores the government’s commitment to enhancing tax compliance and revenue generation.
