Questions raised on blanket immunity to construction sector

KARACHI: Tax experts on Monday raised questions over the blanket immunity granted to the construction sector from disclosing source of investment, hinting at its nonconformity to an action plan agreed with the global financial system’s watchdog to control money laundering.

Chartered accountant firm KPMG Taseer Hadi & Co. said it needs to be seen how the Financial Action Task Force (FATF) would take the blanket immunity from questioning the source of investment.

“Action against illegal money, money value transfer services (such as hundi-hawala) is one of the outstanding conditions of FATF to get the country out of FATF grey list,” KPMG said in a report.

The Tax Laws (Amendment) Ordinance, 2020, announced special incentive package in early April for revival of construction sector in backdrop of deterioration of macroeconomic indicators.

The government announced grant of industry status to the sector along with formation of construction industry development board to promote and support the sector. The construction industry and many allied sectors have also been exempted from lockdowns otherwise in force in the country to arrest Covid-19 pandemic.

“The amendments made through the amendment ordinance are likely to be incorporated through the upcoming Finance Bill, 2020,” the auditing firm said. “To align with this announcement, the amendment ordinance granted status of ‘industry’ to construction sector through suitable amendment in the Income Tax Ordinance, 2001 and offers several time bound tax reliefs to builders and developers who complete their projects by September 2022.”

Many of these concessions are optional. Those who decide not to opt for the tax rates offered by the newly promulgated eleventh schedule might continue to be taxed under the normal tax regime.

The amendment ordinance also grants immunity from probe regarding source of investment, subject to fulfillment of certain conditions, though it is noted that immunity is restricted to the provisions of the 2001 ordinance and does not cover the Banami Transactions (Prohibition) Act, 2017.

“The amendment ordinance is also silent on any exemptions from sales tax or excise duty on construction material, though this was also part of the package announced by the Prime Minister,” KPMG said.

“There is also no relief from capital gains tax on commercial property or open plots despite announcement to the contrary.” The ordinance allows protection from probe vis-à-vis nature and sources of investment made with respect to any amount invested as capital in a building, or any amount invested as capital in a land possessed or acquired by the builder or developer, or its partner in case of a limited liability partnership or in association of persons if the amount is invested as capital or the land is transferred on or before December 31, 2020 in the manner as prescribed and is utilised in a construction or development project.

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