ISLAMABAD: The Federation of Pakistan Chambers of Commerce & Industry (FPCCI) has formally submitted a request to the Federal Board of Revenue (FBR) for the withdrawal of tax on Immovable Properties as per Section 7E.
According to the Acting President of FPCCI, Muhammad Suleman Chawla, the entire business, industry, and trade community of Pakistan shares the sentiment that the introduction of Section 7E within the Income Tax Ordinance (ITO) of 2001 has caused disruptions to economic activities.
Finance Act of 2022, Section 7E
Enacted under the Finance Act of 2022, Section 7E was incorporated into the Income Tax Ordinance 2001. This amendment stipulates that starting from the tax year 2022 and onwards, every resident individual is to be treated as having earned an income equivalent to five percent of the fair market value of capital assets situated in Pakistan, with certain capital assets exempted based on legal provisions.
This deemed income is subject to a tax rate of 20 percent. In essence, whether rented out or not, individuals owning substantial real estate would be subject to a 20 percent tax on 5 percent of the fair market value of their property. This 5 percent is treated as potential rental income.
Federation of Pakistan Chambers of Commerce & Industry contends that this provision has also proven unproductive and ineffective, generating a mere Rs. 10 billion in revenue during its initial year of implementation. Moreover, the Chamber’s President emphasized, “We have suffered even more in terms of investor sentiment, both domestic and overseas, particularly in relation to the real estate sector.”
Chawla highlighted that following a Lahore High Court (LHC) judgment, the FBR recently issued a Circular stating that Section would not be applicable to cases falling under the jurisdiction of LHC, specifically in Punjab.
He emphasized that it is now imperative to heed the long-standing concerns of the business community regarding Section 7E. He called upon the caretaker finance minister to instruct the FBR to revoke Section for the rest of the country, thereby earning the goodwill of the business community.
Chawla underscored that the elimination of 7E from ITO 2001 would serve as a tangible measure to instill confidence among stakeholders in the nation’s economy, providing them with a sense of being heard by their government.
Advance Tax on the sale or transfer of Immovable Properties
Regarding upward revisions in the rates of withholding tax (WHT) for the purchase and sale of immovable properties, Chawla pointed out that the rates have been increased from 1 percent to 3 percent under Sections 236C (Advance Tax on the sale or transfer of immovable property) and 236K (Advance Tax on the purchase or transfer of immovable property). Labeling this increase as unjust and counterproductive, the Acting President demanded the immediate withdrawal of the revised rates before they inflict further harm.
He further questioned the rationale and effectiveness of repeatedly issuing numerous income tax notices to individuals affected by Section, leading to harassment and psychological pressures.
Chawla called for the immediate withdrawal of all existing show cause notices under Section 7E, where recovery demands have been made for deemed income equivalent to 5 percent of the fair market value for capital assets and immovable properties held by concerned individuals.
He added that Section, which levies income tax on immovable properties, falls under the jurisdiction of the provinces according to the constitution and could lead to double taxation. Chawla predicted that this provision would directly impact the real estate and construction sector, resulting in unemployment and a decline in commercial and economic activities.