ISLAMABAD: The Federal Board of Revenue (FBR) has issued revised guidelines to streamline tax collection for builders and developers, addressing industry concerns over withholding tax and liquidity constraints.
The clarification, issued through Circular No. 8 of 2025-26 (IR Policy Income Tax), replaces an earlier directive dated March 31, 2026. It aims to resolve ambiguities regarding the application of advance tax under Section 236C of the Income Tax Ordinance, 2001 for taxpayers operating under the special tax regime defined in Section 7F.
Under Section 7F, eligible builders and developers are taxed under a simplified system where income is computed as a fixed percentage of gross receipts instead of conventional profit-based calculations. However, stakeholders had raised concerns that withholding tax collected under Section 236C—generally adjustable against capital gains—created additional financial strain for those operating within this regime.
The FBR acknowledged that since taxpayers under Section 7F are taxed under “Income from Business” through a special mechanism, adjustment of withholding tax may not always be possible—especially where no other taxable income exists during the year.
To address this, the FBR clarified that taxpayers who have fully discharged their liabilities under Section 7F and have no additional taxable income may apply for exemption from advance tax under Section 236C.
Eligible applicants can approach their respective Commissioners Inland Revenue under Section 159 of the ordinance to obtain exemption certificates, allowing non-collection of tax on transactions involving the sale of immovable property.
The FBR has directed tax officials to assess such applications on a case-by-case basis, ensuring compliance with legal requirements while adhering to defined timelines.
In a key facilitation measure, the circular introduces an automated safeguard: if the Commissioner fails to decide on a complete application within seven working days, the exemption certificate will be automatically issued through the IRIS system.
Tax experts believe the move will ease cash flow pressures, reduce compliance uncertainty, and support activity in Pakistan’s construction and real estate sectors.
