Karachi, February 3, 2025 – The Federal Board of Revenue (FBR) is expected to eliminate Section 7E of the Income Tax Ordinance, 2001, which pertains to the taxation of deemed property income.
This potential repeal follows recommendations from a task force established by the Prime Minister, aimed at promoting real estate transactions and easing compliance burdens for taxpayers.
According to sources, the FBR is actively working towards the removal of this section, pending final approval from the government. The imposition of tax under Section 7E, which was introduced through the Finance Act, 2022, has been a subject of significant controversy among taxpayers, particularly regarding its impact on filing income tax returns. Many stakeholders, including real estate investors and tax professionals, have expressed concerns over the complexities and ambiguities surrounding its implementation.
Section 7E mandates that a tax be levied on a deemed income, calculated as 5% of the fair market value of capital assets situated in Pakistan, excluding specific exemptions. The provision applies to resident individuals and has led to disputes regarding its interpretation and enforcement. The tax rate under this section has been set at 20% on the deemed income, further complicating property-related tax obligations.
The FBR has been under pressure from various business and real estate associations to reconsider the tax due to its impact on property investments. Critics argue that Section 7E discourages investment in real estate, as it imposes additional financial liabilities on property owners, regardless of whether the property generates actual income. Additionally, the regulation has resulted in legal challenges, with taxpayers disputing its constitutionality and scope.
The FBR’s anticipated decision to abolish Section 7E aligns with broader government efforts to streamline tax policies and encourage economic growth. By removing this section, the FBR aims to create a more favorable environment for property transactions and improve compliance rates among taxpayers.
Furthermore, the FBR has been evaluating alternative measures to ensure revenue generation without imposing undue financial stress on taxpayers. The organization is committed to refining tax laws to balance revenue collection with economic incentives, ensuring that the tax system remains equitable and efficient.
As discussions progress, stakeholders await an official announcement from the FBR regarding the fate of Section 7E. If the repeal is finalized, it would mark a significant shift in Pakistan’s tax policy, potentially revitalizing the real estate sector while simplifying tax compliance for property owners across the country.