Government unveils tax incentives for contractors in Budget 2023-24
Islamabad: A news source reported on June 9 that the government has introduced tax incentives for contractors and individuals engaged in new construction projects to recognize their vital role in the country’s economic development.
According to the budget details for 2023-24, constructors will receive tax relief of either 10% or 5 million Pakistani rupees on their business income for the next three years. Individuals engaged in construction endeavours will receive a 10% or PKR 1,000,000 tax credit over the next three years. These tax advantages will become effective on July 1, 2023.
To stimulate development for an additional two years, the government has proposed increasing the concessional tax rate for banks providing loans to the construction industry, agriculture, and small and medium-sized businesses. Originally, the concessional tax was offered from 2020 to 2023. It is important to observe that this scheme allowed banks to be taxed at a 20% reduced rate on loan-generated income.
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In addition, the government has implemented a unique tax regime for land developers. Under the new regulation, they will be regarded as distinct businesses and taxed on a project-by-project basis. Businesses engaged in land development, such as banks and insurance companies, will be subject to scheduler taxation. According to Section 113 (Turnover Tax), the proposed minimal tax rate for land developers is five percent of gross revenue. This rate is substantially less than the standard tax rate of 1.25 percent applicable to individuals, AOPs, and corporations.
In addition, a Project Advance Tax is proposed, in which the Approving Authority will collect an advance income tax of 7.5% of the fair market value of the land according to the Federal Board of Revenue (FBR) Table value upon the initial approval of the Layout Plan (LoP). This quantity will be applied over three years to the project’s annual income tax liability.
