Karachi, July 15, 2023 – The Federal Board of Revenue (FBR) has taken decisive action against individuals who default on tax liability under Section 7E of the Income Tax Ordinance, 2001, by prohibiting them from selling immovable properties.
Official sources within the FBR revealed that a significant amendment has been introduced through the Finance Act of 2023, aiming to compel defaulters to fulfill their income tax obligations. The amendment specifically targets Section 236C of the Income Tax Ordinance, 2001, which relates to withholding tax from sellers of immovable properties at the time of sale or transfer registration.
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The new amendment, which came into effect on July 1, 2023, states: “(2A) Notwithstanding anything contained in any other law, for the time being in force, any person responsible for registering, recording, or attesting transfer of any immovable property shall not register, record, or attest transfer unless the seller or transferor has discharged its tax liability under section 7E, and evidence to this effect has been furnished to the said person in the prescribed mode, form, and manner.”
Approximately a year ago, the FBR introduced Section 7E of the Income Tax Ordinance, 2001, which pertains to tax on deemed income. According to this tax law, starting from the tax year 2022, individuals are subject to a tax imposed on specified income. A resident person is deemed to have derived income chargeable to tax under this section, equivalent to five percent of the fair market value of capital assets held in Pakistan on the last day of the tax year, excluding certain exemptions.
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The exemptions under Section 7E include:
(a) One capital asset owned by the resident person.
(b) Self-owned business premises from where the business is conducted by individuals appearing on the active taxpayers’ list at any time during the year.
(c) Self-owned agricultural land used for agricultural activity, excluding farmhouses and adjoining land.
(d) Capital assets allotted to specified categories, such as Shaheed or dependents of a Shaheed belonging to Pakistan Armed Forces, individuals who die while in the service of Pakistan’s armed forces or federal or provincial governments, war wounded persons, ex-servicemen, and serving personnel of armed forces or government.
(e) Properties generating taxable income under the Ordinance, with taxes duly paid.
(f) Capital assets acquired in the first tax year, where tax under section 236K has been paid.
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(g) Capital assets with a total fair market value, excluding those mentioned in clauses (a), (b), (c), (d), (e), and (f), not exceeding twenty-five million Rupees.
(h) Capital assets owned by provincial governments or local governments.
(i) Capital assets owned by local authorities, development authorities, builders, and developers involved in land development and construction, subject to registration with the Directorate General of Designated Nonfinancial Businesses and Professions.
With the new amendment in place, the FBR aims to curb tax evasion and ensure compliance with tax regulations. By preventing the sale or transfer of immovable properties for defaulters under Section 7E, the FBR aims to encourage individuals to fulfill their tax obligations promptly.
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This move demonstrates the FBR’s commitment to strengthening the country’s tax framework and promoting fairness in taxation. Defaulters are now compelled to clear their tax liabilities under Section 7E before proceeding with property transactions, ensuring a more transparent and accountable tax system in Pakistan.
