The Pakistan Tax Bar Association (PTBA) has called for the formation of a larger bench to address inconsistencies in rulings regarding the taxation of foreign property income. This issue has sparked legal uncertainty for Pakistani tax residents owning properties in the UAE and UK.
In a formal letter to the chairman of the Appellate Tribunal Inland Revenue (ATIR), the PTBA highlighted the contradictory decisions made by different divisional benches of the tribunal. The confusion centers on whether rental income and capital gains from properties located abroad are taxable in Pakistan.
The Lahore Registry of the ATIR issued rulings in 2022 and 2024 stating that such income is not taxable in Pakistan. Conversely, the Islamabad Registry ruled in November 2022 that income from UAE properties is taxable. These conflicting judgments have left taxpayers uncertain about their obligations, potentially hindering tax compliance and administration.
The PTBA emphasized the urgency of resolving this matter, noting that clear guidelines are essential to avoid further complications. The association has requested the formation of a larger bench under Rule 3(2) of the ATIR (Functions) Rules, 2023. This rule provides for the constitution of a larger bench to resolve inconsistencies in decisions made by benches of equal strength.
The PTBA referenced a 1997 precedent that underscored the risks of unresolved conflicting decisions, including “confusion and chaos” in tax administration. Such a scenario could negatively impact both taxpayers and the authorities responsible for enforcing compliance.
The resolution of this issue holds particular significance for the increasing number of Pakistani tax residents with properties in the UAE and UK. Many taxpayers are uncertain about their tax liabilities concerning rental income and capital gains from these assets.
Addressing this uncertainty is critical to ensuring a fair and transparent tax system. By clarifying whether foreign property income falls within Pakistan’s tax jurisdiction, the government can promote better compliance while protecting taxpayers from potential penalties arising from misinterpretations of the law.
The PTBA’s appeal underscores the need for prompt and decisive action to establish clarity and consistency in tax rulings, fostering confidence in Pakistan’s tax system for individuals with international financial interests.