The Federal Board of Revenue (FBR) has issued new guidance allowing construction firms operating under a special tax regime to avoid advance withholding tax on property sales, provided they meet specific eligibility criteria and obtain exemption certificates from tax authorities. 

RF Report

Pakistan’s Federal Board of Revenue (FBR) has introduced a significant tax exemption for builders and developers through Circular No. 07 of 2025-26, addressing long-standing liquidity concerns in the construction industry on 31 March 2026.

The circular clarifies the treatment of withholding tax for taxpayers operating under Section 7F of the Income Tax Ordinance, 2001. This special regime allows qualifying construction and development businesses to pay tax on deemed profits calculated at 10% to 15% of their gross receipts, which is classified as business income rather than capital gains.

Previously, these taxpayers faced a deduction of advance tax under Section 236C on property sales, creating cash flow problems since such tax is typically adjustable against capital gains. However, builders under Section 7F report business income, making the deducted amount non-adjustable if they have no other taxable income during the year.

The FBR now permits affected taxpayers to apply for exemption certificates under Section 159 of the Ordinance. Those who have fulfilled their tax obligations under Section 7F and have no additional taxable income can request their Commissioner Inland Revenue to authorise non-collection of Section 236C tax on property transactions.

Commissioners must review applications individually, verify compliance with all eligibility requirements, and process requests within prescribed timelines. This targeted relief aims to reduce unnecessary financial strain on the construction sector while maintaining tax compliance standards.