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COMMENTS ON TAX LAWS (AMENDMENT) ORDINANCE,...

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  • COMMENTS ON TAX LAWS (AMENDMENT) ORDINANCE, 2020

    The information contained in this booklet has been prepared on the basis of Tax Laws

    (Amendment) Ordinance, 2020 and is not intended to be advice on any particular

    matter. No person should act on the basis of any matter contained in this publication

    without seeking appropriate professional advice. The booklet is published for our

    clients and staff for information and guidance only and should not be published or

    reproduced without prior permission of the firm.

    This document can be accessed on www.hzco.com.pk

    REANDA HAROON ZAKARIA & COMPANY

    Dated: April 18, 2020

  • Preamble

    The purpose of this Ordinance is to provide relief package to construction industry

    by way of promulgation of Tax Laws (Amendment) Ordinance, 2020 vide dated

    April 17, 2020 to provide boost to economic activity.

    Applicability

    The Ordinance intends to provide relief to all persons namely individual or Companies

    and Partnerships registered under Companies Act, 2017 and Partnership Act, 1932

    respectively as single object status of builder or developer.

    However, the benefits under this Ordinance shall not be available to holder of public

    officer as defined in Voluntary Declaration of Domestic Asset Act 2018 or his

    benamidar as defined in the Benami Transactions (Prohibition) Act, 2017 or his/her

    spouse or dependent.

    Definitions

    “builder” means a person who is registered as a builder with the Board and is engaged

    in the construction and disposal of residential or commercial buildings;

    “developer” means a person who is registered as a developer with the Board and is

    engaged in the development of land in the form of plots of any kind either for itself

    or otherwise

    “new project” means a construction or development project, which –

    (i) is commenced during the period starting from the date of commencement

    of the Tax Laws (Amendment) Ordinance, 2020 and ending on the 31st day of

    December, 2020; and

    (ii) is completed on or before the 30th day of September, 2022

    “existing project” means a construction or development project, which –

  • (i) has commenced before the date of commencement of the Tax Laws

    (Amendment) Ordinance, 2020;

    (ii) is incomplete;

    (iii) is completed on or before the 30th day of September, 2022; and

    (iv) a declaration is provided in the registration form under Eleventh Schedule

    to the effect of percentage of the project completed up to the last day of the

    accounting period pertaining to tax year 2019;

    “commencement of project” means,–

    (i) in case of a construction project, when layout plan is approved by the

    concerned authority; and

    (ii) in case of a development project, when the development plan is approved

    by the concerned authority:

    Provided that where the builder or developer has taken all actions and done all

    things which are required and necessary to procure any approvals but any such

    approval is delayed beyond a period of 30 days from date of relevant

    application and the cutoff date of 31st day of December, 2020 is not adhered

    to by the builder or developer, the Board may provisionally accept

    commencement of such project on a case to case basis;

    “completion of project” means. -

    (i) in the case of a builder, the date on which the grey structure is completed:

    Provided that such grey structure shall only be considered as completed

    when the roof of the top floor has been laid as per the approved plan;

    (ii) in the case of a developer, the date on which –

    (A) at least 50% of the total plots have been booked in name of buyers;

  • (B) at least 40% of the sale proceeds have been received;

    (C) landscaping has been completed; and

    (D) at least 50% of the roads have been laid up to sub-grade level as

    certified by the approving authority or NESPAK;

    “unit” means a self-contained or independent building or part thereof including

    houses, apartments, shops, offices, etc.

    “commercial building” includes any building or part thereof which is to be used for

    commercial purposes in accordance with the relevant laws;

    “Residential Building” means any building which is not a commercial building but does

    not include buildings used for industrial purposes.

    Scope

    This Ordinance shall apply on both to new project as well as existing project subject

    to the condition that project is completed on or before 30th day of September 2022.

    Relief

    - There shall be no question asked about the source of investment being capital

    investment from the individual, partners or shareholders of the new project if the

    amount is invested before 31st December 2020 and is utilized wholly in a construction

    or development project completed on or before September 30, 2022.

    - The immunity shall also be available to the first purchaser in a project if the purchase

    is made on or before the 30th day of September, 2022. However, no immunity shall

    be available to subsequent or substituted purchaser.

    - The builder and developer shall not be required to withhold taxes under section 153

    and 150 of the Income Tax Ordinance, 2001 on;

  • i) Purchase of building material except cement and steel

    ii) services of plumbing, electrification, shuttering and other similar services

    other than those provided by companies.

    iii) Distribution of dividend to its shareholders in case of a Company.

    - The Ordinance also provides exemption from CVT on transfer of immovable property

    situated in Islamabad Capital Territory.

    - Through this Ordinance, persons engaged in construction activity has been included

    in the definition of industrial undertaking starting from 1st May, 2020 thus providing

    them benefit of exemption of income tax on import of construction machineries

    subject to exemption certificate issued by Commissioner Inland Revenue.

    - Dividend income from companies has been declared as exempt.

    - To reduce tax liability in case of profits and gains derived from projects of low cost

    housing developed or approved by Naya Pakistan Housing and Development

    Authority or under the Ehsaas Programme by ninety percent.

    - No minimum tax or alternate cooperate tax under section 113 and 113C of the

    Income Tax Ordinance, 2001 shall be chargeable to companies paying fixed rate of

    tax under this Ordinance.

    - Further the Ordinance to provides one time exemption from capital gain for

    individuals who have derived income from sale of residential property used for

    personal accommodation not exceeding 500 square yard or 4000 square feet in case

    of a flat.

    - The completion of project in case of developer shall be certified by satisfactory rated

    QCR firm of ICAP that fifty percent of the plots have been booked and forty percent

    of the sale proceeds has been received.

    - The rate of tax for collection of tax under section 236A of the Income Tax Ordinance,

    2001 has been reduced to 5% on auction of immovable property.

  • Conditions

    - The income of the project shall be chargeable to tax on project by project basis at

    fixed rate on the basis of area of the project which shall be final tax liability. No

    deduction or deductible allowance will be claimed against income of the project nor

    any refund or tax credit except for tax under section 236K of the Income Tax

    Ordinance, 2001 shall be allowed.

    - Builders and developers intending to take benefit of this Ordinance shall be required

    to be registered with FBR on project by project basis through online portal of FBR.

    The registration shall be irrevocable and shall be made on or before 31st December,

    2020. Further, the existing project shall also declare the percentage completed as of

    30th June 2019 along with above prescribed registration form under this Ordinance.

    - In case the project is being undertaken by AOP or Company, the same shall be

    registered Partnership Act, 1932 or Companies Act, 2017 as the case maybe after

    the commencement of this Ordinance.

    - The builder or developer availing benefit under this scheme shall furnish certificate

    to the board from approving authority or NESPAK as the case maybe, certifying total

    land area, covered area, saleable area and type of total saleable area or the total

    land area in the project.

    - Any person claiming immunity from explanation of source of investment shall make

    investment on or before 31st December 2020, in the following manner:

    i) In case the investment is in form of money, the same shall be deposited in

    newly opened designated bank account of the individual and in case the

    project is undertaken as AOP or Company, the same shall be deposited in

    the bank account of AOP or Company as the case maybe through crossed

    banking instrument; or

    ii) In case the investment is made in the form of land, the person shall have

    the ownership title of the land at the time of commencement of this

    Ordinance and where the project is undertaken as AOP or Company, the

  • title of such property shall be transferred to such AOP or Company, as the

    case may be.

    - The above benefit of immunity to explain source of investment shall also be available

    to first purchaser of a unit from builder or purchaser of plot from developer if the

    investment is made in the following manner:

    i) In case of a unit is purchased from builder, full payment in case of new

    project or full or balance payment in case of an existing project is made

    through crossed banking instrument to the builder from the date of

    registration of project by the builder but not later than September 30, 2022.

    ii) In case of purchase of plot from developer for construction of building, the

    same conditions shall apply on the purchaser of the plot as if it applied on

    the builder for construction of building.

    - The value of property for the purpose investment shall be higher of 130% of fair

    market value as determined by FBR or the lower of the values as determined by at

    least two independent valuers from the list of valuers approved by the State Bank of

    Pakistan.

    - The ownership structure of partners and shareholders of the project shall not be

    changed in case of incomplete project unless fifty percent of the total project cost as,

    certified by a firm of chartered accountants having an ICAP QCR rating of

    ‘satisfactory’, is incurred on the project. Further the substituted partner shall not be

    eligible for immunity to explain source of investment.

    - Advance tax liability shall be discharged in four equal installments in accordance with

    section 147.

    - The builder or developer shall be entitled to take credit of income in books of accounts

    to the extent of ten times the amount of tax only.

  • - Where any declaration is required to be made under this Ordinance, has been made

    through misrepresentation or suppression of facts, such declaration shall deemed to

    be void.

    Rate of tax

    The rate of tax shall be as follows:

    Area (A) Karachi, Lahore and Islamabad

    (B) Hyderabad, Sukkur, Multan,

    Faisalabad, Rawalpindi, Gujranwala,

    Sahiwal, Peshawar, Mardan,

    Abbottabad, Quetta

    (C) Urban Areas not specified in

    A and B

    TAX ON BUILDERS FOR COMMERCIAL BUILDINGS

    Area in Sq. Ft.

    Rate/ Sq. ft.

    Any size Rs.250 per sq. ft

    Rs.230 per sq. ft

    Rs.210 per sq. ft

    FOR RESIDENTIAL BUILDINGS Area in Sq.

    ft. Rate/ Sq. ft.

    upto 3000 Rs.80 per sq. ft

    Rs.65 per sq. ft Rs.50 per sq. ft

    More than 3000 & above

    Rs.125 per sq. ft

    Rs.110 per sq. ft

    Rs.100 per sq. ft

    TAX ON DEVELOPERS (ENTIRE PROJECT) Area in Sq.

    Yds. Rate/Sq. Yd

    Any size Rs.150 per sq. yd

    Rs.130 per sq. yd

    Rs.100 per sq. yd

    FOR DEVELOPMENT OF INDUSTRIAL AREAS Area in Sq.

    Yds. Rate/Sq. Yd

    Any size Rs.20 per sq. yd

    Rs.20 per sq. yd Rs.10 per sq. yd

  • However, in case of existing incomplete projects opting to pay tax on above fixed

    rate basis, the tax payable shall be reduced by the percentage of completion up to

    the last day of the accounting period pertaining to tax year 2019.

    The area of the project will be calculated on total saleable area in case of commercial

    building and total covered area in case of residential building. However, in case of

    mixed use buildings having both commercial and residential areas, respective rates

    shall apply.


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