Pakistan’s tax authority, the Federal Board of Revenue (FBR), has introduced significant relief measures for property developers and builders by streamlining the issuance of withholding tax exemption certificates.
Under the new directive, tax officials must issue exemption certificates within seven working days to developers who have already fulfilled their tax obligations under the special tax regime.
According to the latest circular, if a complete application is submitted and all conditions are met but the concerned Commissioner fails to respond within the specified timeframe the exemption certificate will be automatically issued through the IRIS system.
This move is expected to reduce delays and improve ease of doing business in Pakistan’s real estate and construction sector.
Key Legal Clarifications
The clarification relates to:
- Section 236C of the Income Tax Ordinance (advance tax on property transactions)
- Section 7F, which governs a special tax regime for builders and developers
Under Section 7F, developers are taxed based on a fixed percentage of gross receipts, rather than traditional profit calculations.
Addressing Industry Concerns
Developers had raised concerns that applying withholding tax under Section 236C typically adjustable against capital gains creates liquidity challenges for those operating under the Section 7F regime.
Since income under this regime is treated as “business income,” many developers lack sufficient taxable income to adjust the withheld tax, leading to additional cash flow pressure.
Who Qualifies for Exemption?
The FBR clarified that:
- Builders and developers who have fully paid their tax liability under Section 7F
- And have no other taxable income
- can apply for exemption from advance tax collection.
Eligible applicants must submit requests under Section 159 to their respective Commissioner Inland Revenue, who will review each case individually and decide based on compliance with legal requirements.
Impact on Real Estate Sector
The policy is expected to:
- Improve liquidity for developers
- Reduce unnecessary tax burdens
- Encourage investment in real estate and construction
- Enhance transparency and efficiency in tax administration
