Islamabad: The Federal Board of Revenue (FBR) on Monday directed its field formations to treat Cooperative Housing Societies (CHS) as a company for tax purposes and make sure the CHSs file their income tax returns properly with audited accounts on an accrual basis, according to news sources.
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In this regard, the FBR issued circular number 3, 2022, instructing formations to resolve CHS outstanding cases for revenue collection. All prior circulars and directions on this subject have been withdrawn. In this circular, it was stated that the taxation of CHS registered under the Cooperative Societies Act 1925 had experienced three problems.
• First, real estate projects take longer to complete than other types of projects, making it difficult to keep track of revenues and expenses.
• Second, under the ‘Doctrine of Mutuality,’ CHSs have claimed tax exemption. It indicated that no one can make a profit or generate an income by doing business with itself.
• Third, the differential handling of CHSs throughout formation resulted in conflicting case laws, further complicated the case.
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As a result, the exchequer got below par revenue while compliance costs increased for CHSs.