Pakistan’s Federal Board of Revenue (FBR) has issued a new clarification aimed at easing tax compliance for builders and property developers operating under the special tax regime.
Key policy update
Under Circular No. 08 of 2025-26 (IR-Policy – Income Tax), tax authorities have been instructed that:
- Builders and developers eligible for exemption must be issued withholding tax exemption certificates within 7 working days
- If the Commissioner Inland Revenue does not act within this period, the system (IRIS) will automatically generate the exemption certificate
Who is eligible?
The clarification applies to developers covered under Section 7F of the Income Tax Ordinance, 2001, which:
- Taxes builders and developers on a presumptive basis (fixed percentage of gross receipts) instead of traditional profit calculations
- Requires full settlement of tax liability under this regime before exemption can be granted
Key relief under Section 236C
Normally, Section 236C imposes advance withholding tax on property transactions. However, the FBR has clarified:
- Developers who have fully paid taxes under Section 7F
- And have no other taxable income
➡️ can apply for exemption from advance tax under Section 236C
This is intended to prevent cash-flow pressure, since withheld tax cannot easily be adjusted under the special regime.
Administrative instructions
The Federal Board of Revenue has directed Commissioners Inland Revenue to:
- Process applications under Section 159
- Verify compliance on a case-by-case basis
- Ensure decisions are made strictly according to law
- Avoid delays beyond the prescribed timeline
Practical impact
For the real estate sector in Pakistan, this move is meant to:
- Reduce liquidity strain on developers
- Speed up tax clearance procedures
- Improve transparency in property transactions
- Address long-standing complaints about double withholding burdens
If you want, I can also explain in simple terms how Section 7F and 236C interact, because the tax structure is a bit technical but important for property investors.
