Karachi, July 26, 2023 – In a significant move aimed at ensuring tax compliance, the Federal Board of Revenue (FBR) has announced that individuals defaulting under Section 7E of the Income Tax Ordinance, 2001, will be barred from purchasing immovable properties.
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The decision comes in the wake of the Finance Act, 2023, which introduced a new sub-section (2A) in section 236C of the Income Tax Ordinance. According to the amendment, any person responsible for registering, recording, or attesting the transfer of an immovable property will be prohibited from doing so if the seller or transferor has outstanding tax liabilities under section 7E of the Ordinance. In order to proceed with the property transfer, the seller must clear their tax dues and furnish evidence of the payment to the relevant withholding agent.
To facilitate the implementation of this new measure, the FBR has issued a separate circular, No. I of 2023, providing detailed instructions on the mode, form, and manner for furnishing evidence of tax payment under section 7E. The circular applies to both Active Taxpayers List (ATL) and Non-ATL persons, thereby ensuring a standardized procedure for tax compliance verification.
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The introduction of Section 7E of the Income Tax Ordinance, 2001, took place approximately a year ago, with the primary objective of taxing deemed income. Under this provision, individuals are subject to a tax on specified income. Resident persons are considered to have derived income chargeable to tax under this section, amounting to five percent of the fair market value of capital assets held within Pakistan on the last day of the tax year, with certain exemptions excluded.
The implementation of this bar on defaulters marks a significant step by the FBR to enhance tax collection and promote transparency in property transactions. This measure is expected to encourage individuals to comply with their tax obligations promptly and prevent tax evasion through property transactions.
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Real estate experts and tax professionals anticipate that this move will have a positive impact on tax revenue and may deter potential defaulters from engaging in tax evasion practices. However, some experts also warn about the need for robust monitoring and enforcement to ensure the effectiveness of the measure.
Taxpayers are urged to review their tax liabilities under section 7E and promptly clear any dues to avoid potential impediments in future property transactions. Additionally, those involved in property transfers are advised to thoroughly adhere to the guidelines outlined in the circular to facilitate a smooth and compliant transfer process.
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The FBR’s decisive action underscores the government’s commitment to strengthening the country’s fiscal framework and promoting a culture of tax compliance among citizens and businesses alike.
