Experts challenge certain conditions of package

ISLAMABAD: Tax experts have challenged certain conditions of the incentive package for the construction sector, which so far was unable to attract developers and builders in making new investments within the given timelines under the Tax Laws (Amendment) Ordinance, 2020.

Tax experts told Business Recorder that the tax relief for construction sector initially granted through an Ordinance on 17th April 2020 and later regularized through Finance Act 2020 for the revival of the economy during Covid-19 slow down has so far not attracted the builders and developers to invest due to impracticable conditionalities placed therein.

Tax experts opined that though package contains much sought-after concept of minimum tax for builders and developers and no question about the source of funds both for investors and the buyers yet it contains multiple stipulations which are impossible to fulfill and there is no rationale for the same as well

When contacted Shahid Jami, tax consultant enumerated various conditions which are keeping the investors at bay. Firstly, there is a requirement to deposit all the investment money in a new bank account by 31 December 2020, out of which land is to be purchased by 31 December 2020 and later development is to be made by 30th September 2020. The Source of this amount will not be questioned. He observed there is no rationale of this condition especially when another condition binds that value of the immovable property will be taken as higher of 130 percent of FBR value or lower of valuation made by two independent valuers approved by the State Bank of Pakistan (SBP). When this cap is in place then why to seek upfront deposit of funds in the bank account which also contrary to peculiar requirement in this sector of gradual investment over an extended period of the project.

He observed if at all advance deposit in the bank account was imperative to safeguard against excessive whitening of money in construction costs than at the most gradual deposit over project cycle should have been required especially when by 30th September 2020 only partial completion of the project is required then why to require a hundred percent deposit of investment amount in bank account 27 months in advance, by 31 December 2020.

Jami further pointed out that the condition of incorporating a new single object company or partnership after 17th April 2020 makes no sense when another condition already provides that any other income of developer or builder shall not be taxed under fixed tax rather would be taxable under normal tax regime. This unnecessary condition means that established builders and developers would not be able to launch a new project under this incentive through their existing companies who invariably have loan facilities from banks in place.

Jami observed that another shortcoming is that though the existing companies having incomplete projects have been given the option to opt for fixed tax for the incomplete portion yet they have not been given the linked benefit of no question about the source of investment on investment yet to be made and this creates uneven playing field for companies engaged in incomplete and new projects apart from lack of propriety.

Jami pointed out a legislative lapse as purchasers of the plot of a new project of developers under this scheme have been practically denied the benefit regarding the source of funds used for purchasing a plot. Developers are required to have 50 percent booking and 40 percent receipts by 30 September 2022 whereas to avail the benefit of the source of funds buyers of the plot are required to make 100 percent payment for plot by 31 December 2020 and start construction as well and complete the same by 30th September 2022. This is the self-contradictory provision and impossible to meet with when developers have not even fully laid out the roads and the buyers of the plot are supposed to complete construction. So the buyers of plots in new project and buyers of houses etc in new or incomplete projects have not been treated equally.

Jami observed that apparently the drafting of the package was entrusted to FBR and due to peculiar mindset imprudent and impossible conditions have been put in and no one has noticed it that in its present shape the incentive is going to be a failure merely due to bad drafting in isolation without consulting the stakeholders.

He pointed out that over three months have been passed since promulgation of the Ordinance on 17th April 2020, but the FBR has not issued any explanatory circular or FAQs.

Tax expert referred to a recent webinar by FBR wherein hundreds of questions remained unanswered and FBR team was not well prepared and even lacked consensus amongst them. He proposed that suggestions from stakeholders are invited on the publicly visible portal and an Ordinance is issued to cover the legislative lapses and delete the superfluous conditions otherwise the desired results of the revival of the economy are not in sight, Jami added.—SOHAIL SARFRAZ