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Pakistan

Only 50% of deemed income tax be paid at the moment: SC grants interim order

  • Top court directs FBR to expand tax base rather than enhancing taxes on compliant citizens
Published March 22, 2023
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The Supreme Court has granted an interim order that only 50% of the deemed income tax be paid at the moment till the Appeal is pending final adjudication.

In the second hearing of the appeal, the court told the Federal Board of Revenue (FBR) that it should expand tax base rather than enhancing taxes on compliant taxpayers.

Supreme Court Judge Ayesha Malik observed that “FBR should encourage compliant and rich taxpayers to grow and as a result of growth, tax collection will increase. However, here we see that FBR is hammering the same set of taxpayers who pay taxes”.

CVT on foreign assets, tax on ‘deemed income basis’: FBR decides to publish richest defaulters’ names

Section 7C (Deemed Income from immovable properties) was added to the Income Tax Act as part of Finance Act 2022 for the tax year 2022 and onwards.

According to it, a resident person who owns capital assets on the last day of the tax year (ie June 30) with an aggregate fair market value above Rs25 million, is liable to pay tax on deemed income.

The fair market value is the value notified by the FBR and deemed income is calculated as 5% of the fair market value. This deemed income is subject to a tax rate of 20%.

‘Deemed rental income’ of properties: LHC approached against legislation levying income tax

Last year, the tax was challenged in the Lahore High Court (LHC). In this regard, the LHC issued notice to the Attorney General of Pakistan.

According to an order of the LHC, the constitutional petition questioned the Constitutionality 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.

Deemed income on capital assets: Taxpayers required to file new form separately

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

Comments

1000 characters
SAMIR SARDANA Mar 22, 2023 09:13pm
THE ISSUE IS FAIR MARKET VALUE THIS IS A NORMAL TAX ALL OVER THE WORLD ONLY THING IS THAT THE VALUATION IN EU IS NOT THE FAIR MARKET VALUE IT IS THE CADASTRAL VALUE - WHICH IS MUCH LOWER THAN FAIR MARKET VALUE,AND IS FIXED,BY THE LAND REGISTRY. ON THAT LOWER VALUE, THERE IS AN IMPUTED TAX, WHICH IS MUCH LOWER THAN 5% IN PAKISTAN. BUT THIS IS AN IDEAL TAX FOR PAKISTAN. AND THIS IS NOT A DEEMED WEALTH TAX OR PROPERTY TAX.SAMIR SARDANA
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Asif Mar 23, 2023 05:18am
Acha hai aur property down karo. Property down hogi TU investor aye ga . Bas ek opportunity ki zazurat hai sastay daam miljaey. It will be for long term . Generational wealth will be made in 2023.
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Imran Sheikh Mar 23, 2023 05:57am
When the foreign property is actually rented, and taxed there, deemed income makes no sense. There cannot be two incomes from tge same property. If however foreign property is kept empty for owner's occasuinal use while he is resident in Pakistan, that can be a different situation. Where actual rental income is taxed abroad, and declared in Pakistan, then if a double-tax treaty exists can there still be deemed income requiring seperate taxation in Pakistan?
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