The implementation of the mandatory requirement to comply with section 7E payment has brought property documentations across Pakistan to a near halt.
Representatives from the real estate sector in major cities conveyed this concern during a meeting of the National Assembly Standing Committee on Finance at the Parliament House.
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According to the real estate sector’s representatives, the Federal Board of Revenue (FBR) is expected to issue revised valuation tables for immovable properties in August 2023. However, the introduction of section 7E of the Income Tax Ordinance 2001 has complicated the situation, leading to a suspension of property transfers and registrations.
During the meeting, committee members discussed the feasibility of addressing section 7E in the Income Tax Ordinance 2001 and whether the committee could propose changes in the Finance Act 2023. Since there was no FBR official present to respond to the real estate sector’s queries, the matter was postponed for the next meeting.
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The Federation of Realtors Pakistan (FORP) informed the committee that property registries have decreased by up to 95%, and property transfers across the country have come to a standstill. The increase in taxes has resulted in difficulties for both local and overseas investors, with capital now being transferred abroad. This has made overseas investors uneasy about their investments in Pakistan.
FORP recommended that the deemed rental income under section 7E should be withdrawn, and if that’s not possible, it should only be charged on plots. They suggested that filers should be allowed to proceed with transfers after submitting an affidavit, while non-filers should be subject to the charge.
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Section 7E was introduced through the Finance Act 2022, treating every resident person’s income as 5% of the fair market value of the capital asset situated in Pakistan, with exclusions provided in the law. This deemed income is taxed at a rate of 20% (effectively 1% of the fair market value of immovable property).
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In the Finance Act 2023, a new sub-section (2A) in section 236C of the Ordinance prevents the transferring authority from registering, recording, or attesting the transfer of any immovable property unless the seller or transferor has fulfilled their tax liability under section 7E and provided evidence of such compliance to the transferring authority in the prescribed manner.
