Understanding Tax Incentive Package for Real Estate Projects

This presentation by Commissioner Abdul Hafeez covers key definitions related to the PM's Tax Incentive Package, focusing on areas such as salable and covered area, commercial and residential buildings, builders, developers, first purchasers, projects, capital investment, and more. It clarifies terms like saleable area, builder, developer, first purchaser, project commencement dates, and capital investment, providing insights into the tax incentives for new and existing real estate projects. Attendees will gain a comprehensive understanding of the tax incentives applicable to different stakeholders in the real estate sector.

• Tax incentives
• Real estate projects
• Definitions
• Commercial buildings
• Residential buildings

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1. Presentation on Presentation on PM s Tax Incentive Package PM s Tax Incentive Package By (ABDUL HAFEEZ) Commissioner IR Medium Taxpayers Office, Karachi 7thOCTOBER 2020

2. DEFINITIONS AREA In case of builder commercial or residential building excluding a house, the salable area. In case of a house, the covered area of a house In case of developer total land area of project SALEABLE AREA in case of buildings, means saleable area as determined by map approving authority or NESPAK BUILDING a residential , commercial or a unit thereof RRESIDENTIAL BUILDING a building which is not a commercial building but does not include buildings used for industrial purposes

3. DEFINITIONS COMMERCIAL BUILDING includes any building or part to be used for commercial purposes BUILDER Means a person who is registered as a builder with Board and is engaged in construction and disposal of residential or commercial buildings DEVELOPER means a person who is registered as a developer with Board and is engaged in development of Plots either for itself or otherwise FIRST PURCHASER means a person who purchases a building or a unit, directly from builder and does not include a subsequent or a substituted purchase

4. DEFINITIONS PROJECT means a project for construction of a building with the object of disposal, or a project for development of land into plots with the object of disposal or otherwise NEW PROJECT means a construction or development project, which - (i) is commenced during the period starting from 17-4-2020 and ending on 3lst day of December, 2020 (ii) completed on or before the 30-9-2022

5. DEFINITIONS EXISTING PROJECT means a construction or development which (i) has commenced before 17-4-2020 (ii) is incomplete (iii) is completed 30-9-2022 (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 tax year 2019 CAPITAL INVESTMENT means investment as equlty resources and does Dot include borrowed funds UNIT means self-contained or independent buildings or part thereof including houses, apartments, shops, offices etc.

6. DEFINITIONS COMMENCEMENT OF PROJECT means,- In case of construction project, when layout plan is approved In case of development project, when development plan is approved Providedthat where building 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 cutoff date of 31st day of December, 2020 is not adhered to by builder or developer, Board may provisionally accept commencement of such project on a case to case basis

7. DEFINITIONS COMPLETION OF PROJECT means- In case of a builder, date on which grey structure is complete Provided that such grey, structure shall only be considered as completed when roof of top floor laid as per approved plan In case of a developer, date on which- (A) at least 50% of total plots booked in name of buyers (B) at least 40% of sale proceeds received (C) landscaping completed; and (D) at least 50% of roads laid up to sub-grade level as certified by approving authority or NESPAK

8. REGISTRATION REGISTERED Means registered after submission of form on project by- project basis on the online lRIS web portal On IRIS through FBR website on or before 31-12-2020 Filling particulars of a owner / member / shareholder as a builder or developer separately Irrevocable option in respect of each project 8

10. CERTIFICATE TO BE ATTACHED Provide to Board a prescribed certificate from map approving authority / NESPAK showing: Total land area in square yards Covered area in square feet Saleable area in square feet Type: commercial, residential, industrial 10

11. CERTIFICATE BY NESPAK / MAP APPROVING AUTHORITY CERTIFICATE BY NESPAK / MAP APPROVING AUTHORITY

12. PERSON NOT AVAILING EXEMPTION U/S 111 PERSON AVAILING EXEMPTION U/S 111 New / Existing incomplete Project Eligible New Project NOT REQUIRED single object AOP / Co. registered by 31st December NOT REQUIRED Member to transfer cash through banking channel / land to AOP / Co. by 31st December NOT REQUIRED Separate Bank a/c for deposit by 31-12- 2020 for all transactions

13. PERSON NOT AVAILING EXEMPTION U/S 111 PERSON AVAILING EXEMPTION U/S 111 ownership of Undeclared Plot on / before 17-4- 2020 [u/s 100D (3)] or purchaseon / before 31-12-2020 [u/s 100D (4)] for purpose of complete construction & IRIS registration NOT REQUIRED Land / money to be utilized wholly Construction is Commenced before 31-12-2020 NOT REQUIRED NOT REQUIRED Higher of Plot cost @ 130% of FBR value or SBP approved value report NOT REQUIRED First purchaser to make full payment through cross checque in NEW project. Balance or full payment through cross checque for incomplete existing REQUIRED Registration on IRIS REQUIRED Completion of project REQUIRED

14. TAXATION Fixed Tax for builders and developers Income not chargeable under any income head No deduction allowable in deriving income No deductible allowance No setting off of any loss No tax credit except for tax under section 236A or 236K No refund of any tax deducted if tax payable not paid or short paid; recovery under law No minimum tax U/S 113 & ACT U/S 113C 14

15. TAXATION One time exemption of capital gain tax on sale of personal accommodation upto 500 sq yard house / 4000 sq feet flat Status of an industrial undertaking for import of machinery. Advance tax on auction of immoveable property from 10% to 5%. CVT on immoveable property and shares withdrawn NO IMMUNITY IF CHANGE IN OWNERSHIP Where exemption claimed U/S 111, change not allowable (except death) until 50% of project cost incurred & certified by firm having ICAP QCR rating. Additional partner may join after 31-12-2020 but not eligible for exemption u/s 100D(3) 15

16. EXEMPTION FROM WITHHOLDING U/S 153: GOODS: building material except steel & cement SERVICES: Other than those except provided by companies U/S 150: Dividend recipients INCORPORATION OF PROFITS & GAINS 10 times of FTR tax paid, normal tax if profit higher 16

17. SCOPE OF TAX Tax computable, payable on project by-project basis Annual Tax Working: Tax liability as per rates Estimated project life in years Estimated life for new project not > 2.5 years Estimated life for existing incomplete project: 3-years, TY 2020, 2021, 2022. Tax Liability for TY 2020 shall be paid along with return. Year shall include fraction of a year ADVANCE TAX: four equal installments; recovery proceedings as per law 17

18. TAX RATES 100 SQUARE YARDS FLAT PM Package: 900 square feet x 250 = 225,000 NORMAL RATES: 2,700,000 @ 3000 per square feet Plot value Construction Rs. 10,800,000 Total Rs. 10,000,000 @ 100,000 per square yard 20,800,000 Sale Rs.28,000,000 Profit Rs. 7,200,000 Tax @ 25% Rs. 1,800,000 Per Flat Rs. 450,000 18

19. TAX RATES In case of mixed use buildings having both commercial and residential areas, respective rates mentioned shall apply In case of development of plots & constructing buildings on same plots as one project, both rates shall apply In case of low cost housing & projects developed by NAPHDA, higher rates to apply. 19

20. TAX COMPARISON ON 100 SQ YARD FLAT Fixed Tax Under PM Package: 900 square feet x 125 = Rs.112,500 Tax per flat NORMAL TAX: 1,800,000 (900 @ 2000) construction cost per square feet Plot value Construction Rs. 7,200,000 for ground plus 3 Total 17,200,000 Rs. 10,000,000 @ 100,000 per square yard Sale Rs.28,000,000 Profit Rs.10,800,000 Tax @ 25% Rs. 2,700,000 Tax Per Flat Rs. 675,000 6-TIMES HIGHER TAX 20

21. THANKS THANKS