ISLAMABAD: The Federal Board of Revenue (FBR) has established minimum profit margins for builders and developers to facilitate the collection of a new tax on their taxable profits as per the amended Finance Bill 2024. The amended bill stipulates taxable profits for developers and builders at fixed rates of 10 percent, 15 percent, and 12 percent.
A new section (7F-tax on builders and developers) introduced in the Finance Bill 2024 mandates a tax on the taxable profit of individuals earning income from the construction and sale of residential, commercial, or other buildings, as well as from the development and sale of residential, commercial, or other plots. The tax rates are specified in Division I or II of Part-I of the First Schedule.
Despite efforts to incorporate developers and builders into the tax net, the FBR has not achieved the desired results.
For clarity, the section specifies that the taxable profit will be:
- 10 percent of gross receipts for certain specified activities
- 15 percent of gross receipts for other specified activities
- 12 percent of gross receipts for additional specified activities
This section applies exclusively to income derived from the specified activities mentioned in sub-section (1) and does not cover income from other sources or under different income heads.
Taxpayers cannot claim credit for sums exceeding the taxable profit when explaining the nature and source of credited amounts or investments, except where taxable income under section 9 exceeds the taxable profit under this section. In such cases, the taxpayer is entitled to credit for the taxable income, provided they pay the tax at the specified rate in Division I or II of Part I of the First Schedule.
This section does not apply to builders or developers established by an Act of Parliament, provincial assembly, or Presidential Order, who benefit their employees or plan, develop, and provide housing and ancillary facilities in a specified or notified area.
