Interim relief has been granted by the Supreme Court of Pakistan against deemed income tax in Pakistan on real estate imposed by section 7E of the Income Tax Ordinance 2001.
The special bench made the interim decision of the supreme court of Pakistan on Wednesday 22nd of March 2023. The bench allowed the taxpayers payment of only 50% of the deemed income tax assessed till a final decision by the court. The court also advised the FBR not to take any adverse action against the taxpayers who have paid 50% of the assessed tax on deemed income in accordance with the interim decision.
Since the insertion of section 7E, several petitions have been filed against its legality. Earlier the imposition of section 7E has been challenged in various courts of the country on several bases including the legislature’s competence regarding the imposition of such tax.
Earlier the Sindh High Court had given a decision in favor of the Federal Board of Revenue, however, the legal team of the FBR failed to satisfy the court regarding the basis of imposition of the deemed income tax on real estate assets or the income of the taxpayers.
The matter was also challenged in the Lahore High Court on which the Court passed an interim order that the imposition of tax on deemed income appears to be in contradiction of the provisions of section 116 of the Income Tax Ordinance 2001 and is based on the speculative value of the asset. It was also prayed by the petitioners against the court that the imposition of section 7E is in violation of the constitution of Pakistan. Possessing a property does not necessarily mean that it is deriving income as well. Also, the matter is beyond the legislative competency of the legislature to impose such a tax on the market value of the immovable property.
For details of deemed income under section 7E, please click on the following link:-
Deemed Income Section 7E Explained Easy
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