Karachi, May 1, 2025 – The Federal Board of Revenue (FBR) has been urged to eliminate the controversial Section 7E of the Income Tax Ordinance, 2001, in the forthcoming federal budget for fiscal year 2025–26.
The call for its removal comes from the Karachi Tax Bar Association (KTBA), which submitted its tax proposals to the FBR earlier this week.
In its recommendations, the KTBA expressed strong reservations about the continuation of Section 7E, stating that the provision imposes tax on “deemed income” from immovable properties, even when no actual income is generated. According to the KTBA, Section 7E is fundamentally unjust, as it taxes unrealized gains—something not only burdensome for taxpayers but also damaging to investor sentiment.
“The concept of deemed income, as laid out in Section 7E, is highly controversial and should be reconsidered,” the KTBA stated in its proposal. “It creates artificial income scenarios that result in increased tax liability for individuals and entities who may not have earned any real income from their properties.”
Critics of Section 7E argue that it discourages property ownership, stifles real estate development, and may even contribute to capital flight from the country. Many believe that such provisions weaken investor confidence and dissuade both domestic and foreign investment in Pakistan’s real estate and construction sectors.
The KTBA emphasized that removing Section 7E would contribute to a more favorable investment climate, particularly in sectors already under pressure from inflation and policy uncertainty. The association stressed that a tax system should be based on actual income rather than theoretical valuations, which often lead to disputes and legal challenges.
The FBR is currently reviewing budget proposals from various stakeholders, and whether it decides to repeal Section 7E remains to be seen. However, calls for its removal have grown louder, with many tax professionals and business groups echoing the KTBA’s stance in hopes of fostering a more rational and equitable tax regime in Pakistan.