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”.
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.