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FBR Issues Tax Notices to Corporate Housing Schemes

According to press reports, the Federal Board of Revenue (FBR) in Islamabad has instructed its field formations to regard Cooperative Housing Societies (CHS) as corporations for tax reasons and to ensure that CHSs file their income tax returns correctly with audited accounts on an accrual basis.

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In this regard, the FBR issued circular number 3 in 2022, instructing formations to address pending CHS revenue collection cases. All previous circulars and directives pertaining to this topic have been rescinded. It was claimed in this circular that the taxation of CHS registered under the Cooperative Societies Act of 1925 had encountered three issues.

• First, real estate projects take longer to finish than other sorts of projects, making it difficult to track income and expenditures.

• Secondly, CHSs have claimed tax exemption under the ‘Doctrine of Mutuality’ It indicated that no entity can produce a profit or income by conducting commerce with itself.

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• Thirdly, the varying treatment of CHSs throughout formation has led to inconsistent case law, further complicating the situation.

As a result, the exchequer received below-average revenues while CHS compliance costs soared.

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