FBR Mandates Income Tax on Immovable Properties

A large number of Pakistani citizens are required to pay tax on deemed income basis on immovable properties under section 7E of the Income Tax Ordinance, 2001 in their income tax return and wealth statement to be filed by September 30, 2022.

The last date for filing income tax returns is September 30th, 2022, and taxpayers are legally bound to pay tax on deemed income basis on immovable properties. This means that September 30th, is the last date for owners of properties including real estate agents and developers/builders/investors to deposit the said tax on deemed income basis.

However, through a petition (52559 of 2022), a citizen has requested the court to allow the filing of income tax returns without payment of the said tax. The court has directed the FBR to submit a reply by September 13 as the taxpayer has to file a return of income by Sep 30, 2022.

In another petition, a petitioner has questioned the constitutionality of 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 Entry 50 of the Federal Legislative List, Fourth Schedule of the 1973 Constitution.

The fundamental objection raised is that tax added through Section 7E is in pith and substance, tax on the immovable property, to which extent Parliament is not competent to make laws, as after the 18th Constitutional Amendment, 2010, only the provincial legislature is eligible and competent to tax immovable property.

The tax was imposed in lieu of the holding/owning of immovable property, equal to five percent of the fair market value of capital assets, by declaration 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 50.

The court called for an interpretation of Entry 50 of the Fourth Schedule, in the context of Section 7E, and to adjudge the challenge thrown on the ground of discriminatory enactment.