The taxation measure of Rs. 30 billion, enforced through the Finance Act 2022 to levy tax on deemed income of capital and real estate assets situated in Pakistan, has been challenged in the Lahore High Court (LHC).
The LHC issued an order on Wednesday in this regard. The court has not granted a stay order against the said taxation measure of the Finance Act 2022 but issued notice to the  Attorney General of Pakistan.
Finance Act 2022 has specified that the tax on deemed income would be applicable for Tax Year 2022 (outgoing fiscal year) and onwards for taxation of capital assets situated in Pakistan. For the Tax Year 2022 and onwards, a tax shall be imposed at the rates specified in Division VIIIC of Part-I of the First Schedule on the income specified in this section of the Income Tax Ordinance 2001.
The LHC order said that the constitutional petition questioned the consistency of the section 7E (tax on deemed income) of the Income Tax Ordinance 2001, inserted through the Finance Act 2022, on the premise of legislative incompetence of the Parliament to enact law outside the scope of the entry number 50 of the Federal Legislative List, Fourth Schedule of the Constitution.
The fundamental objection is that the tax added through section 7E is, in pitch and substance, tax on immovable property, to which extent Parliament is not competent to make laws after the 18th Constitutional Amendment 2010, where after, only the provincial legislature is eligible and competent to tax immovable properties.
The petitioner said that the tax was imposed in lieu of the holding and owing of the immovable property, equal to 5 percent of the fair market value of capital assets, by declaring it as deemed income, when no question of any gain thereupon arises, which is in fact and law an attempt to hoodwink the mandate of entry number 50, ibid when asked counsel submits that the tax in question is not classifiable or covered under the head of the capital gains.
The exclusions of certain categories of persons from the tax net are discriminatory and the classification prescribed infringes the constitutional guarantee of equality of citizens, not founded on the rationally intelligible differential.
Questions pleaded prima facie calls for interpretation of entry number 50 of the Fourth Schedule in the context of section 7E, ibid, and to adjudicate the challenge thrown on the ground of the discriminatory enactment.
Since substantial questions such as the interpretation of the constitutional provisions are involved, it is appropriate to issue notice to the Attorney General of Pakistan. The case was re-listed on August 4, 2022, the LHC order added.
