ISLAMABAD: The Federal Board of Revenue (FBR) has issued a clarification regarding the applicability of advance tax on property transactions for builders and developers operating under a special tax regime, aiming to ease their financial burden and address industry concerns.
In a circular issued on April 15, 2026, which supersedes an earlier directive dated March 31, the FBR explained that builders and developers covered under Section 7F of the Income Tax Ordinance, 2001 may seek exemption from advance tax under Section 236C, subject to certain conditions.
Under Section 7F, specific categories of builders and developers are taxed based on a fixed percentage of their gross receipts, rather than conventional income calculation methods.
However, concerns were raised that the collection of advance tax under Section 236C—typically applicable on the sale of immovable property—was creating an additional financial burden for such taxpayers.
The FBR acknowledged that while advance tax under Section 236C is generally adjustable against capital gains tax, this mechanism does not effectively apply to builders and developers under Section 7F, whose income is treated as business income.
As a result, the deduction of such tax leads to liquidity issues, particularly for those with no other taxable income to offset the amount.
To address this issue, the FBR has clarified that eligible taxpayers who have already discharged their tax liability under Section 7F and do not have other taxable income may apply for exemption from advance tax collection. The exemption can be obtained by submitting an application to the concerned Commissioner Inland Revenue under Section 159 of the Ordinance.
The tax authority further directed Commissioners to review such applications on a case-by-case basis and ensure that all conditions for exemption are fulfilled before granting approval. Importantly, the circular introduced a facilitative measure stating that if the Commissioner fails to act on an application within seven working days, the exemption certificate will be automatically issued through the FBR’s IRIS system.
The latest clarification is expected to provide much-needed relief to the construction sector, which has long argued that overlapping tax provisions were increasing the cost of doing business and constraining cash flows.
By streamlining the exemption process and addressing procedural delays, the FBR aims to promote ease of doing business and support the growth of Pakistan’s real estate and construction industries.
