In a surprising turn of events, the implementation of Section 7E of Income Tax Ordinance, 2001, which levies a tax on deemed rental income from land and property, has revealed a stark discrepancy in how tax obligations are being applied to filers and non-filers of tax returns.
While tax filers are required to pay this tax annually, non-filers are only subject to this tax at the point of disposing of their property, and even then, for just a single year under the Section 7E. This revelation has sparked a widespread debate on fairness and efficacy in tax collection practices.
Section 7E was introduced to capture the income generated from properties that are not being used as the owner’s primary residence, or which are not rented out, but rather held as investments or for occasional use. The tax is computed based on a notional rental income that such properties could potentially earn, thereby increasing the tax base without requiring actual rental transactions.
However, the Federal Board of Revenue (FBR) now faces significant scrutiny over its implementation of this new section. The differential treatment of tax filers and non-filers under this provision not only complicates the landscape of property taxation but also raises questions about equity and administrative fairness.
Tax experts and policy analysts argue that this disparate treatment inadvertently incentivizes tax filing evasion. The current framework might encourage more people to remain outside the tax net, as the consequences for non-filers are significantly less severe until the property is actually sold,” stated a senior tax consultant at a local advisory firm. “This undermines the potential revenue that could be consistently collected each year and delays the benefits that could accrue from these funds,” the tax consultant added.
The FBR has recognized the need for tighter regulations and clearer rules to ensure that all property owners, irrespective of their tax filing status, are treated equally under Section 7E. Proposals are being considered to amend the law so that non-filers are also liable for the tax annually, not just at the point of sale. Such an amendment would align the tax liabilities of filers and non-filers, thereby reinforcing the principles of equity and fairness in the tax system.
Additionally, there is a strong push for implementing a penalty for delayed payment of this tax. “Implementing a penalty for late payment, calculated from the time the tax would have become due if the owner had been a filer to the time it is actually paid at sale, could deter property owners from deferring their tax filing,” explained the tax consultant.
To streamline this process and close any loopholes, it is suggested that the land registration authorities be tasked with ensuring that all dues under Section 7E are cleared before any transfer of property title is executed. This would not only facilitate smoother enforcement but also prevent any accumulation of tax liabilities that could impact the real estate market negatively.
As the FBR mulls over these changes, the real estate sector and potential investors are closely watching. The outcomes of these deliberations are expected to significantly influence market dynamics and the broader economic landscape of the country. With a fair and efficiently enforced tax system, the government hopes not only to increase its revenues but also to foster a culture of compliance and fairness among its citizens.
