KARACHI: The Federal Board of Revenue (FBR) and the Association of Builders and Developers of Pakistan (ABAD) on Monday agreed on a new simplified and fixed taxation system for builders and land developers that would help generate an additional revenue of Rs25 billion.

These proposals will be included in the upcoming federal budget.

Under the agreement, there will be three categories of builders and developers for taxation: Category A for Karachi, Lahore and Islamabad; Category B for Hyderabad, Sukkur, Multan, Faisalabad, Rawalpindi, Gujranwala, Sahiwal, Peshawar, Mardan, Abbottabad and Quetta; and Category C for all other urban areas not specified in the first two categories.

For residential buildings and offices, builders falling under Category A would pay Rs20 per square foot for an area of up to 750 sq feet, Rs40 for 751-1,500 sq feet and Rs70 for 1,501 sq feet and above. The rates would be Rs15, Rs35 and Rs55 for Category B, and Rs10, Rs25 and Rs35 for Category C, respectively.

For commercial buildings, the tax rate would be Rs210 per sq foot for all the categories.

Similarly, land developers falling under Category A would pay Rs20 per sq yard for an area of up to 750 sq yards, Rs40 for 121-200 and Rs70 for 201 sq yards and above for residential plots.

The tax rates for the respective slabs would be Rs15, Rs35 and Rs55 for Category B, and Rs10, Rs25 and Rs35 for the Category C.

A tax of Rs210 per sq yard has been proposed for commercial plots falling under all the categories.

According to the tax collection formula, a builder or developer shall pay 5pc of total tax to approving authority at the time of approval of a project; a builder or developer shall apply to the chief commissioner for the balance payment of 95pc for four-monthly equal instalments over the project’s life; for ongoing projects, tax liability shall be computed on the basis of new tax rate and tax shall be payable accordingly; a no-objection certificate from the chief commissioner shall be mandatory before transfer of built-up units to buyers or issuance of completion certificate (whichever is earlier); and no adjustment of withholding tax under other provisions of law shall be allowed against tax liability.

ABAD Chairman Hanif Gohar hoped that builders and developers would now be able to pay taxes properly. “We are being blamed for not paying proper taxes. But the reality is that there was no proper system in place for taxation on the construction sector.”

Published in Dawn, May 24th, 2016