Recognizing the vital role of the construction and allied industries in the economic development of the country, the government has unveiled a package of incentives aimed at promoting construction activities and encouraging individuals and builders to undertake new construction projects.
Under the new measures, builders will be eligible for a tax relief of 10 percent or up to Rs. 5 million on their business income for the next three years. Similarly, individuals undertaking construction projects will receive a tax relief of 10 percent or up to Rs. 1 million over the same period. These tax benefits will be applicable to construction projects that commence after July 1, 2023.
The government’s decision to provide these incentives stems from its commitment to boost the construction industry, agriculture, and small and medium-sized enterprises (SMEs). In 2020, a concessional tax rate of 20 percent was introduced for banks providing loans to these sectors, replacing the standard tax rate of 39 percent. Originally set to expire this year, the government has proposed extending this scheme for an additional two years until 2025.
In addition to these measures, the government has also announced taxation reforms for land developers. Land development businesses will be treated as separate entities and taxed under a special schedule based on their project activities. A minimum tax rate of 5 percent of turnover under section 113 (Turnover Tax) will be applied, while the standard tax rates for individuals, associations of persons (AOPs), and companies will remain at 1.25 percent. The proposal also introduces Project Advance Tax.
Furthermore, the government plans to implement a system of Advance Income Tax at a rate of 7.5 percent of the fair market value of the land at the Federal Board of Revenue (FBR) Table value upon the first approval of the Layout Plan (LoP). The Approving Authority will collect this tax, which will be adjusted over a three-year period against the project’s yearly income tax liability.
The new incentives and tax reforms are expected to stimulate construction activities, attract investment, and foster economic growth. By providing relief to builders and individuals undertaking construction projects, the government aims to create a favorable environment for the sector and boost employment opportunities.
The proposals will now undergo review and approval processes before they can be implemented.