FBR Hits Faisal Town With Rs. 1.82 Billion Tax Notice for Misreporting Income
The Federal Board of Revenue (FBR) has issued an income tax demand of Rs. 1.82 billion against real estate developer Faisal Town (Private) Limited, alleging that the company understated its taxable income for Tax Year 2020 through an incorrect method of revenue recognition.
According to an assessment order issued by the Large Taxpayers Office (LTO) Islamabad, FBR amended the company’s tax assessment after concluding that it was erroneous and resulted in a significant understatement of taxable income. The demand is separate from other audit-related additions that may be examined later.
ProPakistani reached out to the property developer. Their response will be added if received.
The dispute revolves around the Percentage of Completion (POC) method used for recognizing income from long-term development projects.
FBR said Faisal Town initially estimated its total project development cost at Rs. 40.46 billion for a project spanning 9,189 kanals. However, during the assessment, the company revised the estimated cost to Rs. 90.46 billion, citing an expansion of the project area to 25,944 kanals.
According to the tax authority, the revised estimate reduced the project’s completion ratio from 44.73 percent to 19.95 percent, significantly lowering the revenue and taxable income recognized for the year.
FBR rejected the revised figures, stating that the company failed to provide sufficient evidence, including feasibility studies, board approvals, or contemporaneous cost estimates, to justify the change. It also noted that the revised approval issued by the Rawalpindi Development Authority (RDA) was granted in January 2021, after the close of Tax Year 2020, and therefore could not be applied retrospectively.
The tax authority further questioned the revised estimates because the projected development cost nearly doubled while the company’s declared total project revenue remained unchanged at Rs. 45.91 billion, creating what it described as a commercially inconsistent position.
Using the original estimated development cost of Rs. 40.46 billion, the FBR recalculated the project’s completion ratio at 44.73% and determined Faisal Town’s taxable income for Tax Year 2020 at Rs. 6.14 billion.
Based on the applicable corporate tax rate of 29%, the FBR computed a tax liability of approximately Rs. 1.82 billion, concluding that the taxpayer failed to substantiate its revised revenue recognition method.
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