ISLAMABAD: The Federal Board of Revenue (FBR) has issued a fresh clarification to ease tax compliance for builders and developers operating under the special tax regime, addressing long-standing concerns from the construction sector.
In a circular dated April 15, 2026—superseding an earlier directive issued on March 31—the FBR clarified that builders and developers covered under Section 7F may apply for exemption from advance tax under Section 236C, subject to specified conditions.
Under Section 7F, eligible builders and developers are taxed based on a fixed percentage of their gross receipts instead of conventional income-based taxation. However, the simultaneous application of advance tax under Section 236C—typically imposed on the sale of immovable property—had created an additional financial burden for such taxpayers.
The FBR noted that while advance tax collected under Section 236C is generally adjustable against capital gains tax, this adjustment mechanism does not effectively apply to taxpayers under Section 7F.
Since their income is treated as business income, the advance tax deduction often results in liquidity constraints, particularly for those without other taxable income to offset the amount.
To resolve this issue, the tax authority has allowed eligible builders and developers—who have already discharged their liability under Section 7F and have no other taxable income—to seek exemption from advance tax. Applications can be submitted to the Commissioner Inland Revenue under Section 159.
The FBR has directed Commissioners to assess such applications on a case-by-case basis, ensuring that all eligibility criteria are met before granting approval. In a key facilitative move, the circular also introduces an automatic approval mechanism: if the Commissioner fails to decide on an application within seven working days, the exemption certificate will be issued automatically through the IRIS system.
This clarification is expected to provide significant relief to the construction sector, which has consistently raised concerns over overlapping tax provisions and cash flow challenges.
By simplifying procedures and reducing delays, the FBR aims to improve ease of doing business and support growth in Pakistan’s real estate and construction industries.
