Tax on deemed income on property: FTO orders probe into bias treatment to taxpayers

ISLAMABAD: Federal Tax Ombudsman (FTO) has ordered an investigation in the matter of discriminatory treatment to taxpayers in all four provinces for collection of tax on deemed income basis on immovable property transactions under section 7E of the Income Tax Ordinance 2001.

In this regard, the FTO has issued notices to FBR Members and Chief Commissioner Inland Revenue Regional Tax Office Islamabad on a complaint filed by a real estate expert Muhammad Ahsan Malik.

FTO has directed the FBR to submit comments on the issue.

According to the details shared by a leading real estate expert, through the Finance Act, 2022, section 7E was inserted into the Income Tax Ordinance, 2001, imposing tax on deemed income from capital assets situated in Pakistan. The said provision has been widely challenged across the country for being unconstitutional and beyond the legislative competence of the Federation.

Despite the interim relief having been extended by the Supreme Court OF Pakistan, the Federal Board of Revenue (FBR) is not uniformly applying the same to taxpayers in the province of Punjab thereby causing discrimination and hardship to similarly placed individuals.

Various writ petitions were filed before all High Courts of Pakistan. The Sindh High Court and Divisional Bench of Lahore High Court dismissed writ petitions filed against the section 7E, whereas, all other High Courts declared section 7E to be unconstitutional.

Consequently, section 7E is not enforced in the Province of Baluchistan, KPK and Islamabad Capital territory.

The judgment of the Sindh High Court was challenged before Supreme Court of Pakistan which is still pending. The Apex Court did not suspend the Judgment of Sindh High Court, however, SC granted an interim relief to taxpayers whereby only 50% of the tax under section 7E was directed to be deposited with the remaining 50% to be subject to the final outcome of the appeal. The Court further held that if the appeal is decided in favour of taxpayers, the deposited amount shall be refunded and vice versa.

The failure of FBR to extend identical treatment amounts to maladministration within the meaning of section 2(3) of the Federal Tax Ombudsman Ordinance, 2000, being arbitrary, unreasonable, discriminatory and contrary to the principles of equity and good administration.

The applicant, being similarly placed as those who have already been extended the benefit by the Supreme Court is entitled to the same treatment in the spirit of Article 25 of the Constitution.

Copyright Business Recorder, 2025