Tax laws grant immunity to first real estate buyer

KARACHI: The immunity from declaration of concealed money is available only to first purchaser of a newly-constructed building or a housing unit under a new law, officials said on Friday.

A tax official at Regional Tax Office-II Karachi said Tax Laws (Amendment) Ordinance, 2020 provide immunity to purchaser from disclosing the source of money used for the purchase of newly constructed building or housing unit.

The official said the section 111 of the Income Tax Ordinance, 2001 allows tax authorities to take action against tax evaders. However, the newly promulgated ordinance prohibits tax officials from invoking the section against first purchaser of newly-constructed building or housing unit.

The tax official said the new ordinance was promulgated with the aim to provide incentives of undeclared money for investment in construction industry for economic growth.

The official, however, said the first purchase availing the immunity would not be allowed to change the name of ownership. Further builders or developers, who are claiming the immunity, would not be allowed to change the name of ownership of a constructed or incomplete building.

Tax adviser AF Ferguson, a member of PricewaterhouseCoopers, said in a case where immunity from section 111 is claimed in respect of capital investment made by an individual or a person through a company or association of persons, change in pattern of ownership of a builder or developer before project completion would be subject to the various restrictions.

Under the restriction, a shareholder or a partner of a builder or developer would not be allowed a change in ownership of an incomplete project except where at least half of the total project cost has been incurred up to the date of change of ownership, which is to be certified by a firm of chartered accountants, notified by the Federal Board of Revenue (FBR). Further succession to legal heirs in case of deceased shareholder or a partner would be allowed.

Meanwhile, additional partners or shareholders can be admitted only after December 31, 2020. However, they will not be eligible for immunity from section 111, according to the chartered accountants firm.

The sources in tax office said the builders and developers are required to file their annual income tax returns and wealth statement despite availing immunity under section 111 of the Income Tax Ordinance, 2001.

The builders and developers are required to get the projects registered electronically with the FBR by December 31, 2020.

Such registration is to be made on the FBR’s online portal by submitting the prescribed registration form (by providing the details of a member or shareholder of a builder or developer) along with an irrevocable option for the project to be assessed under this regime. Two separate registration forms are required to be filed in case the developer is also the builder for the project.