AGL 39.71 Decreased By ▼ -0.42 (-1.05%)
AIRLINK 189.85 Increased By ▲ 0.42 (0.22%)
BOP 9.83 Decreased By ▼ -0.51 (-4.93%)
CNERGY 7.01 Decreased By ▼ -0.20 (-2.77%)
DCL 10.24 Increased By ▲ 0.03 (0.29%)
DFML 41.31 Decreased By ▼ -0.49 (-1.17%)
DGKC 105.99 Decreased By ▼ -2.64 (-2.43%)
FCCL 37.72 Decreased By ▼ -0.87 (-2.25%)
FFBL 93.41 Increased By ▲ 3.50 (3.89%)
FFL 15.00 Decreased By ▼ -0.02 (-0.13%)
HUBC 122.30 Decreased By ▼ -0.93 (-0.75%)
HUMNL 14.31 Decreased By ▼ -0.14 (-0.97%)
KEL 6.32 Decreased By ▼ -0.02 (-0.32%)
KOSM 8.12 Decreased By ▼ -0.28 (-3.33%)
MLCF 48.78 Decreased By ▼ -0.69 (-1.39%)
NBP 72.31 Decreased By ▼ -2.51 (-3.35%)
OGDC 222.95 Increased By ▲ 9.54 (4.47%)
PAEL 33.62 Increased By ▲ 0.63 (1.91%)
PIBTL 9.67 Increased By ▲ 0.60 (6.62%)
PPL 201.45 Increased By ▲ 1.52 (0.76%)
PRL 33.80 Decreased By ▼ -0.75 (-2.17%)
PTC 26.59 Decreased By ▼ -0.62 (-2.28%)
SEARL 116.87 Decreased By ▼ -1.32 (-1.12%)
TELE 9.63 Decreased By ▼ -0.25 (-2.53%)
TOMCL 36.61 Increased By ▲ 1.19 (3.36%)
TPLP 11.95 Decreased By ▼ -0.62 (-4.93%)
TREET 24.49 Increased By ▲ 2.20 (9.87%)
TRG 61.36 Increased By ▲ 0.46 (0.76%)
UNITY 36.06 Decreased By ▼ -0.63 (-1.72%)
WTL 1.79 No Change ▼ 0.00 (0%)
BR100 12,150 Decreased By -15.1 (-0.12%)
BR30 38,093 Increased By 312.6 (0.83%)
KSE100 114,302 Increased By 121.3 (0.11%)
KSE30 35,805 Increased By 104.1 (0.29%)

ISLAMABAD: Advocate Raashid Anwer argued that the federation, in light of Entry 50, could not tax the capital value of immovable property at all – be it through a wealth tax or tax similar to Section 7E of the Income Tax Ordinance, 2001.

A three-judge bench, headed by Justice Syed Mansoor Ali Shah and comprising Justice Muhammad Ali Mazhar and Justice Athar Minallah, on Wednesday, heard the petitions challenging the vires of Section 7E (Tax on Deemed Income) introduced into the Income Tax Ordinance, 2001, through the Finance Act, 2022. Anwer has concluded his arguments.

Anwer further argued that Entry 47 was not applicable in the present circumstances as first, the department (the FBR) had only selectively relied on passages for Elahi Cotton relating to when a “deeming” provision may be applied, and that the tax in question was upheld as being vires on account of the same falling under Entry 52 [which reads, “Taxes and duties on the production capacity of any plant, machinery, undertaking, establishment or installation in lieu of the taxes and duties specified in entries 44, 47, 48 and 49 or in lieu of any one or more of them”] which requires that there be an underlying economic activity/transaction (in the instant case there is no underlying economic activity/transaction as the tax is even applicable on vacant plots of land).

Immoveable property: PHC strikes down Sec 7E of Income Tax Ordinance

Second, Anwer argued that as the tax does not fall under Entry 47 or 52, it needs to be seen whether the same falls under Entry 50 (which – after the 18th Amendment – reads “Taxes on the capital value of the assets, not including taxes on immovable property”)?

Anwer argued that Entry 50 places a bar on the federation from imposing any tax on the capital value of immovable property. He further stated that a Divisional Bench of the Peshawar High Court (which struck down Section 7E on the ground that a tax had to be imposed on the capital value of all assets – movable and immovable, and not on immovable alone) through its judgement dated 02.01.2024 had rightly held that Section 7E could not fall under Entry 47. He, however, contended that the federation (in light of Entry 50) could not tax the capital value of immovable property at all (be it through a wealth tax or tax similar to section 7E).

Section 7E effectively imposes a tax at the rate of one per cent of the Fair Market Value (by deeming that a person shall be deemed to have derived an income equal to five per cent of the FMV of the immovable property, and shall be taxed at the rate of 20 per cent on the aforesaid income). Certain properties have also been excluded from the ambit of the tax (namely self-owned business premises, self-owned agricultural land, property on which rent is earned), as well as certain groups of individuals (namely ex-servicemen and serving personal of armed forces or ex-employees or serving personnel of Federal and provincial governments who were the original allottees of the immovable property).

Anwer had previously challenged the vires of Section 7E before the Sindh High Court (SHC), which – through its Judgement dated 28.10.2022 had upheld the levy by concluding that the federation was empowered to impose the levy by virtue of Entry 47 to the Fourth Schedule (i.e. the Federal Legislative List) [Entry 47 reads “taxes on income other than agriculture income”].

The SHC had also relied on the judgement of the Supreme Court titled, Messrs Elahi Cotton Mills & others v Federation of Pakistan (PLD 1997 SC 582) [wherein, minimum tax under Sections 80C, 80CC, and 80D were upheld] to hold that the income could be “deemed” and therefore, the levy fell under the scope of Entry 47.

Copyright Business Recorder, 2024

Comments

Comments are closed.

Az_Iz Mar 28, 2024 06:15am
Not easy for common man to understand. Does this mean no personal property tax can be collected, say on houses? If so, are states allowed to collect it?
thumb_up Recommended (0)
Aamir Mar 28, 2024 08:07am
7E is ridiculous selective wealth tax. How can you charge income tax on the basis of imaginary deemed income. FBR should stop wasting time and go and find tax evasions where real incomes are generated
thumb_up Recommended (0)
Aamir Mar 28, 2024 08:10am
Waiting for the supreme court to strike off this illegal tax which will only lead to flight of real estate investments to Dubai and abroad.
thumb_up Recommended (0)
M.KHALID Mar 28, 2024 11:26am
if i have more than 20 plots in DHA.or Bahria Towan or any modern area .i do not need to pay any tax because these plots are vacant and not creating any income. a good reason for money laundering
thumb_up Recommended (0)
Builder Mar 28, 2024 04:23pm
7E doesn't just apply to parked property - it also applies to rental income tax evaders. This needs to be fixed. Why salaried class should pay all the taxes? Just because they are on the radar?
thumb_up Recommended (0)
Aamir Mar 28, 2024 05:38pm
@M.KHALID, you can have 50 plots. If it is white money and you have paid income tax then how can they tax property on which there is no economic activity. This would count as wealth tax!
thumb_up Recommended (0)
Aamir Mar 28, 2024 05:41pm
@Builder, How? If the property has rental income then that is already taxed. How can you tax every building even if it is vacant and no income is being generated.
thumb_up Recommended (0)
Aamir Mar 28, 2024 05:43pm
@Az_Iz, property tax will remain. This is addition income tax based on imaginary income that does not exist. Totally ridiculous
thumb_up Recommended (0)
Ajamal Mar 29, 2024 09:33am
@M.KHALID, you may own any number of properties yet not pay any tax, since tax is based on the income, not wealth.
thumb_up Recommended (0)