Large scale manufacturing and real estate as well as other sectors of the economy are showing negative trends primarily because the government’s decision to enforce all the measures concurrently. This was stated by a former finance minister who requested not to be named while talking to Business Recorder. He added that “whatever has been agreed with the Prime Minister and Chief of Army Staff with the businessmen in the last meeting is appropriate”. Pakistan’s economy is not in good shape and it is essential to restore business confidence threatened by National Accountability Bureau and Federal Board of Revenue (FBR) raids.
He added that tax has nothing to do with NAB and is the prerogative of the FBR while loan defaults fall under the purview of State Bank of Pakistan (SBP). He suggested that there is need to strengthen the audit capacity of the FBR as its capacity to generate additional revenue has declined significantly in recent years, adding that in the past 10 to 12 percent additional revenue was being generated through audit. However, he regretted that the FBR is unable now to deal with tax evasion due to weak tax audit.
He further maintained that transport cost has increased by 40 percent which would have a direct impact on the cost of goods and some relief may be provided by relaxing axle load and added that “of course this would have cost implications”. However, he said that once the economic wheels begin to move, the government would have fiscal space to charge for maintaining wear of tear of roads.
Sources in the Finance Ministry said that a simplified fixed tax scheme for real estate sector (developers and builders) has been proposed and its broad contours 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; and (viii) tax rate of Rs 210 per square feet for commercial developers (commercial plots) and requirement of independent certificate from NESPAK.
According to the proposed scheme the Builders and Developers Special Procedures Rules 2019 issued by the FBR would apply to builders and developers, who may opt to pay income tax and furnish returns under these rules.
Under the rules, the income computed and tax payable thereon shall be on ‘project-by-project’ basis under the head ‘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.
(This news/article originally appeared in Business Recorder on October 8th, 2019)