The broad contours of the scheme, according to sources, include: (i) national (central) jurisdiction of developers and builders; (ii) simplified return form; (iii) income computation on 'project-by-project' basis; (iv) dispute resolution committee; (v) no requirement for developers/builders to operate as withholding agent; (iv) tax rate of Rs 210 per square feet for commercial builders in Karachi, Lahore, Islamabad, Hyderabad, Sukkur, Multan, Faisalabad, Rawalpindi, Gujranwala, Sahiwal, Peshawar, Mardan, Abbottabad, Quetta and other urban areas not specified; (vii) the tax rates shall be reduced by 90 percent for low-cost housing schemes; (viii) tax rate of Rs 210 per square feet for commercial developers (commercial plots) and requirement of independent certificate from NESPAK.
According to the draft of the Builders and Developers Special Procedures Rules 2019 issued by the FBR, they shall apply to builders and developers, who may opt to pay income tax and furnish return under these rules. The rules shall extend to whole of Pakistan. They shall come into force at once. These Rules shall apply to all builders and developers, being an individual, an association of persons or a resident company.
Under the rules, the income computed and tax payable thereon shall be on 'project-by-project' basis under the head of '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 rules, the estimated project life is not exceeding three years period. The estimated project life exceeding 3 years shall be approved by the Board. 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 say that an association of persons shall be liable to tax separately from the members of association. The amount received by a member of the association in the capacity as member out of the income of the association shall be exempt from tax. In case of 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. Tax payable under this rule shall be paid in the State Bank of Pakistan's authorized branches of National Bank of Pakistan by the due date for filing of tax returns.
The FBR said that all persons registered under this scheme shall submit the registration form IRIS through FBR website. The persons who hold NTN but has not filed return in preceding five tax years may also submit registration form.
A builder or developer availing this scheme shall electronically file a simplified return of income accompanied with evidence of payment of due tax. Such return filed shall be treated as assessment order under section 120 for the purposes of the Ordinance. All persons opting for this scheme shall be required to file return by the due date prescribed in section 118 of the Ordinance. Return and Wealth Statement filed (if required to be filed) may be revised without approval of CIR within sixty days, the FBR said.
There shall be national (central) jurisdiction in respect of persons falling under this scheme. All persons falling under this scheme shall be communicated through prescribed automated system, the FBR said.
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 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 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 Federal Board of Revenue.
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; including actions on account of any 'definite information' are laid down under sub-section (8) of section 122 of the Ordinance, the FBR said.
Where a person is dissatisfied with examination conducted, the matter shall be referred to dispute resolution committee to be formed under this scheme. The decision of dispute resolution committee shall be binding on Federal Board of Revenue and not on the taxpayer.
Person dissatisfied with examination conducted or decision of the dispute resolution committee can file appeal under section 127 of the Ordinance after payment of 25 percent of tax payable.
The rules say 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 if 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 equipments and on taxable salaries under Section 149 irrespective of the legal status.
Provisions relating to tax collection at import stage shall apply on the person falling under these rules. Amount so withheld will not be adjustable against tax liability.
Any person falling under this scheme may pay advance tax equal to one-fourth of the tax liability for the year in four equal installments.
The FBR has proposed that the source of self-invested equity for any earlier year shall be accepted. Income under any other head shall be taxable under relevant provisions of the Ordinance. The provisions of sections 177 and 214C shall not apply to builders and developers who opt to be taxed under this scheme. For the purpose of collection and recovery of tax, provisions of Part IV of Chapter X shall apply.
Provisions of Section 182 and Section 205 shall apply accordingly. The federal government may, from time to time, by notification in the official Gazette, amend the scheme so as to add, alter, omit or modify any provision therein.