FBR Announces Major Changes for Property Developers

Pakistan’s tax authorities have been directed to issue withholding tax exemption certificates to builders and developers within seven days, provided they have already discharged their tax liability under the special tax regime.

The Federal Board of Revenue (FBR) issued Circular No. 08 of 2025-26 (IR-Policy – Income Tax) to clarify the applicability of withholding tax under Section 236C of the Income Tax Ordinance, 2001, for taxpayers covered under Section 7F.

According to the circular, Commissioners Inland Revenue must adhere strictly to prescribed timelines for issuing exemption certificates. If an applicant fulfills all required conditions and submits a complete application, but the Commissioner fails to act within seven working days, the exemption certificate will automatically be processed and issued through the IRIS system.

The clarification supersedes Circular No. 7 of 2025-26 IR-Policy dated March 31, 2026, and addresses concerns raised by builders and developers regarding advance tax collection on property transactions.

Under Section 7F, certain builders and developers fall under a special tax regime in which taxable income is calculated as a fixed percentage of gross receipts rather than traditional profit calculations. Industry stakeholders had argued that withholding tax under Section 236C—normally adjustable against capital gains—creates liquidity pressure for developers operating under this regime.

Since profits earned under Section 7F are taxed as “Income from Business,” any deduction under Section 236C results in an additional cash-flow burden, particularly for taxpayers without other taxable income against which the collected tax can be adjusted.

After examining the issue, the FBR clarified that builders and developers who have fully discharged their tax liability under Section 7F and have no other taxable income may apply for exemption from advance tax collection under Section 236C.

Eligible taxpayers may submit applications to the concerned Commissioner Inland Revenue under Section 159 of the Ordinance to obtain exemption certificates allowing non-collection of withholding tax on immovable property sales.

Commissioners Inland Revenue have been instructed to review applications on a case-by-case basis, verify compliance with all required conditions, and decide matters strictly in accordance with the law, the FBR said.