Govt Slapped New Tax on Construction Sector in Budget 2016-17

Despite the pivotal role, the property builders and developers are playing in developing the infrastructure and providing the housing facilities to the citizens in the country, their contribution towards the government exchequer is considered less than what it ought to be. Therefore, the government introduced new sections in the recent federal budget 2016-17 to impose taxes on the builders and developers.

To justify the imposition of taxes, the government stated that at present the tax collection from Builders and Land Developers does not match with the level of investment and profits accruing in the construction sector. After discussion, tax has been decided on builders and land developers on the basis of per unit area.

As per the policy paper of the Federal Board of Revenue (FBR), the tax will be imposed in the range of Rs10 to Rs25 per square foot under various categories of medium and large housing societies located in different cities. The FBR has categorized builders and developers into three broad categories and imposed taxes on them accordingly.

Developers and builders in Karachi, Lahore and Islamabad have been placed into Category A and the builders and developers operating in cities including Multan, Gujranwala, Faisalabad, Hyderabad, Rawalpindi, Sakkhar, Sahiwal, Peshawar, Mardan and Abbottabad have been placed in Category B – while the ones operating in the remaining cities are included in Category C.

Builders and Developers who fall in Category A will have to pay Rs210 per square foot on the commercial construction and Rs20 per square foot on the residential structures. The tax rate varies from cities to cities and category to category.

Real estate experts have welcomed this budget but most of them are of view that these taxes will not be paid from the developers and builders’ income but will soon be clearly reflected in the increasing prices of real estate developments. There will also be a steep surge in the construction costs and prices of construction materials.

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