Imran Khan Incentive Package for Construction Industry – A Detailed Review

By presenting the historic incentive package for the construction industry, the Prime Minister of Pakistan Imran Khan has opened new doors to modern developments across the country. Now both the builders and developers are ready to invest billions of rupees in new construction projects in Pakistan. The construction sector is now open for huge investment and FBR will not ask for the source of your funds invested in this industry.

However, as this package entails a number of tax amendments and exemptions for a specified time period, so it is important to understand how a company or an individual can take benefit from it.

First of all, we need to understand the tax benefits a company or an individual can avail under this package. Then we will discuss the eligibility criteria and how you can avail of these tax incentives.

Tax Amendments and Exemptions for Construction Industry

The Federal Government of Pakistan has announced following tax amendments, benefits, and exemptions under this stimulus package for construction industry:

The government has introduced a fixed tax regime for all the development and construction projects. This tax will be charged per square feet basis in case of building. And also, per square yard basis in case of land development.

Withholding Tax is lifted from all the construction materials except Cement and Steel.

Developers and Builders can earn profit/income from a project up to 10 times the tax paid. But if additional profit is earned, they will have to pay additional tax on it.

Investors investing in construction projects under the Naya Pakistan Housing Authority will be given a 90% waiver on tax.

Also, the exemption of tax on dividends paid to shareholders by builders & developers opting for taxation under this scheme.

The most important announcement under this incentive package is that any capital investment by individuals or companies after this scheme will be exempted from Section 111 of the income tax ordinance, i.e. FBR will not inquire about the source of funds.

Moreover, a person selling his personal accommodation will enjoy a one-time exemption from Capital Gains Tax but the size of the house doesn’t exceed 500 square yards and flat size doesn’t exceed 4000 square feet.

Sales tax on construction services reduces to zero.

Advance tax reduced to 5% on the auction of properties.

Capital Value Tax (CVT) on the purchase of properties has been canceled

It is important to mention here that these tax benefits are not only for the development and construction companies. But individuals, who want to buy a plot, build a house or commercial plaza can also get benefit from it.

Eligibility Criteria to Get Benefit from Incentive Package for Construction Industry

How you can register your project under this recently announced scheme? Well, this is the most common question these days. So, here we are sharing the answer for your ease.

There are certain eligibility criteria and guidelines which can help you understand it further. You can easily get yourself or your company registered with FBR, even if you are not a tax filer till the date. But you will have to make your investment before the 31st day of December 2020.

Yes, any existing incomplete project, new construction, and development project can be easily registered under this scheme provided that it is registered on the IRIS web portal of FBR by or before the 31st day of December 2020.

However, in the case of an existing incomplete project, the developer/builder will need to self-declare the percentage of completed work first. And also he needs to pay fixed tax for the remaining part.

Exemption from Section 111 of Income Tax Ordinance

The most important part of this incentive package for the construction industry is the amendment in section 111 of the income tax ordinance. This amendment will allow investors to make an investment in any construction or real estate project without explaining their source of funds to anyone. Yes, FBR will not inquire about your source of income. But the investment should be made in the construction industry till 31st December 2020.

Here are the conditions must be met in order to be eligible for exemption policy:

Land for the development of any construction project must be purchased before 31st December 2020. In the case of cash investment, the amount must be deposited in a bank account. Also, the land must be purchased against the payment made through the bank by or before 31st December 2020.

Moreover, in the case of land investment, the land must be under the ownership of the builder at the time of the announcement of this ordinance.

Any construction/development project under this scheme must commence after due approvals and NOCs from relevant development authorities by or before 31st December 2020. Also, the project must be ready before 30th September 2022.

In order to avail exemption from Section 111, existing buildings or newly registered projects under this scheme can be purchased through crossed banking instruments before 30th September 2022.

Individuals/Companies who Will Not Be Exempted From Section 111

Following are the individuals/companies who will not be exempted from section 111 of income tax ordinance:

Listed public companies and Real Estate Investment Trusts (REITs)

Public Office Holders, their Benamidars (fake title holders), Spouse and Dependents

Any criminal profits derived from Money Laundering, Extortion, and Terror Financing.

After this package, we are quite hopeful that a flood of black money will be invested in real estate projects. The investments after it will boost the real estate prices as well as will also spur construction activities. Moreover, it will also create millions of jobs and play its part to stabilize the economy.

Moreover, we also suggest that the demand for low-cost houses is very high in Pakistan. So, builders and developers should consider developing some low-cost residential projects under Naya Pakistan Housing Development Authority. By investing in these low-cost projects they can earn good profits. And at the same time, they can save 90% of the fixed tax.

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