New Insertion for Section 7E Declaration in Return Form Creates Legal Issues

New Insertion for Section 7E Declaration in Return Form Creates Legal Issues

Karachi, September 4, 2023 – The recent insertion for declaring properties under Section 7E of the Income Tax Ordinance, 2001, in the online return form has given rise to legal issues.

The Pakistan Tax Bar Association (PTBA) has raised concerns about this change, citing several legal and practical challenges.

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According to PTBA, a substantial number of tax returns for the Tax Year 2023 were filed through the IRIS 2.0 system. However, on September 1, 2023, a new requirement was introduced, making it mandatory for taxpayers to fill and submit Form 7E concerning capital assets before filing their income tax returns for the tax year 2023.

The PTBA has identified several issues and objections to this change:

Removal of Previously Submitted Data: The PTBA points out that all properties (capital assets) previously declared in the wealth statement, where returns had been successfully submitted, were removed. This action by the Federal Board of Revenue (FBR) is deemed unjustified and potentially illegal because, after the filing of any income tax return, all fields should have been blocked to prevent further changes. Altering the data in a taxpayer’s return after submission without clear legal authority raises questions about the FBR’s actions.

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Separate Declaration Mechanism: The PTBA argues that Form 7E, which pertains to immovable properties, is an independent form and a separate taxation mechanism under the law. Taxpayers should have the right to challenge the legality of this law if they have reservations about it, but the FBR cannot compel anyone to pay for the mandatory filing of Form 7E when submitting their income tax return. The PTBA believes that this change is illegal and unlawful.

Legal Challenges in High Courts: The legal standing of Section 7E has been challenged in various High Courts across Pakistan. While the Sindh High Court has declared Section 7E as intra vires (within the law), the Lahore High Court has declared it as ultra vires (beyond the law). The Sindh High Court’s decision is currently pending adjudication before the Supreme Court of Pakistan, and orders from three benches of High Courts in Punjab are awaiting decisions on intra-court appeals. Until these orders are reversed, taxpayers in Punjab cannot be compelled to calculate their liabilities under Section 7E. Implementing such changes for taxpayers under the jurisdiction of the Lahore High Court could potentially lead to contempt of court.

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The PTBA’s concerns highlight the legal complexity and challenges involved in making changes to the income tax return filing process, especially when they pertain to contentious sections of the law. These issues underscore the importance of legal clarity and adherence to due process in tax administration.