Islamabad, June 27, 2023: The government has announced that active taxpayers will no longer be required to pay tax on deemed income, according to the Finance Act, 2023.
This decision aims to incentivize and reward individuals who actively contribute to the tax system.
Sources within the Federal Board of Revenue (FBR) revealed that the Finance Act, 2022 had previously imposed a tax on deemed income from immovable properties owned by resident individuals in Pakistan, effective from the tax year 2022 onwards. Under this provision, the deemed income was taxed at a rate of 1 percent based on the FBR values of the properties.
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However, certain exemptions were already in place. These exemptions included:
a) One immovable property owned by the resident individual.
b) Properties generating taxable income under the Income Tax Ordinance, for which the applicable tax has been paid.
c) Immovable properties acquired in the first tax year, where tax under section 236K has been paid.
d) Aggregate immovable properties with a fair market value, excluding specified properties, not exceeding twenty-five million rupees.
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As per the recent amendment through the Finance Act, these aforementioned exemptions will only apply if the person’s name is listed on the Active Taxpayers’ List (ATL). In other words, individuals holding such properties must be active taxpayers to be excluded from the tax on deemed income.
However, there is an exception for individuals who are not required to file an income tax return and obtain a certificate to that effect, as specified in the Tenth Schedule. Even if they do not appear on the ATL, such individuals will not be liable to pay tax on deemed income under section 7E of the Income Tax Ordinance, 2001.
It is important to note that if the tax liability under section 7E remains unpaid, the registrar or person responsible for registering the property transfer must withhold registration until the tax is discharged.
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The exemption for active taxpayers from deemed income tax serves as an encouragement for individuals to fulfill their tax obligations and contribute to the country’s revenue. By incentivizing active participation in the tax system, the government aims to promote tax compliance and strengthen the overall tax structure.
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The exclusion of active taxpayers from the deemed income tax provision is expected to streamline the taxation process, provide relief to individuals who actively contribute to the tax system, and contribute to a fairer and more efficient tax regime in the country.
