As builders and developers were brought into Fixed tax Regime in the last budget, therefore minimum tax on them u/s 113A & 113B of the Income Tax Ordinance 2001 was deleted in 2016-17. The FBR had also provided mode and manner for collection of tax under sections 7C and 7D from builders and developers, the functions and responsibilities of the authorities approving, suspending and cancelling no-objection certificates (NOCs) to sell and the matters connected and ancillary thereto.
Sources said that the revenue generated from developers and builders is not as projected in 2016-17. Therefore, budget-markers are analysing the data and other proposals for taxation of developers and builders. Details revealed that after amendments introduced through the Finance Act, 2016, the income of a builder or a land developer was subjected to final taxation on the basis of specified rates based on cities and areas of properties in respect of projects approved after July 1, 2016.
The income of a builder or a land developer was assessed on the net income basis where declared receipts were reduced by the claimed expenses. As these projects are on long-term basis, therefore provisional assessment on yearly basis on declared receipts was conducted which was followed by the appraisement at the end of the project. Sometime if construction is carried out under long-term contracts, the income tax assessed was on the basis of the percentage of completion method. However, due to non-documented economy receipts, the expenses could not be verified and resultantly taxpayers inflated expenses and suppressed receipts and a very little revenue was contributed by this sector. It said the withholding tax was applicable on transfer of immovable property in the hands of a seller being filer @ 0.5% and non-filer @ 1%. Through the Finance Act 2016, this rate has been increased to 1% for filers and 2% for non-filers. The registration of immovable property shall not be less than the value prescribed by the district collector. Tax collected is adjustable against capital gains arising on disposal of such property. Moreover, this tax is applicable only if the immovable property was acquired within last 5 years.
In the hands of the purchaser another withholding tax was applicable at the rate of 1% for filers and 2% for non-filers prior to the Finance Act, 2016. Through the Finance Act 2016, the rate of WHT has been increased to 2% for filers and 4% for non-filers. The registration of immovable property shall not be less than the value prescribed by the district collector. The tax so collected is adjustable advance tax against the tax liability of the purchaser and if no liability exists, the same can be refunded.
Through the Finance Act, 2016, gains arising on disposal of immovable property acquired within last 5 years have been made taxable @ 10%. Previously these were taxable at a rate 5% and 10% if the holding period was up to one year and two years respectively. However, there was no tax on gains arising out of immovable property where holding period was exceeding two years.
However, under Division VIII of Part I of First Schedule, gains arising on the disposal of immovable property by a person in a tax year to a Rental REIT Scheme shall be taxed at the rate of five per cent up to thirtieth day of June, 2019, irrespective of the holding period, the FBR said.
Prior to the Finance Act 2016, fair market value for the purpose of probing the source of investment in acquisition of immovable property was determined by the commissioner. However, under the Income Tax Rules, fair market value was to be determined as value fixed for the purpose of collecting stamp duty by provincial revenue authorities and it was binding upon commissioner Inland Revenue. Now, the powers of commissioner have been withdrawn and valuation is to be made by a panel of approved valuers of State Bank of Pakistan. Similarly, the binding nature of the value determined by the provincial revenue authorities for the purpose of collecting stamp duty has also been withdrawn.
About the property income of individuals and association of persons, the FBR said that through an amendment in section 15 of the Ordinance, the chargeability of tax on property income for an individual and AOP has been changed from 'net income basis' to 'gross income basis' as a separate block of income for tax year 2017 and onwards. The gross rental receipts of individual and AOP shall be taxed at prescribed rates without allowing any deductions and allowances under section 15A. The tax deducted or deductible u/s 155 in the case of individual and AOP shall constitute final discharge of tax liability. A new Division-VIA has also been inserted in Part-I of the First Schedule which prescribes the tax rates applicable to rental income of individuals and AOPs. Similarly, withholding tax rates for rental payments to individuals and AOPs have also been prescribed in revised table in clause (a) of Division-V of Part-III of the First Schedule. However, property income derived by an individual or AOP below Rs 200,000 shall not be taxable if an individual or an AOP does not have income from any other head. This shall be effective from July 1, 2016 for individuals and AOPs. Property income derived by companies shall continue to be taxed under the existing provisions as before, the FBR added.
Copyright Business Recorder, 2017