On the 15th of November this year, a writ-petition was filed in the Lahore High Court challenging a newly inserted section to the Income Tax Ordinance of 2001. The new section, title 7E, was a seemingly harmless inclusion to the tax ordinance that allowed the Federal Board of Revenue (FBR) to collect income taxes on immovable property.
But according to the writ petition, and other similar cases that are currently being contested in the high court, the inclusion of section 7E is a more sinister move that may in part go against the 18th amendment to the constitution.
The new law mandates that every property which is not in the use of the owner, will be “deemed” by the FBR as bearing a rent equivalent to 5% of the total market value to the property. This “deemed rental income” would be taxed at a rate of 20%. In simple words, every property owner would have to pay a tax equivalent to 1% of the market value of his property to the federal government.
The idea to tax unused immovable property in itself is not a bad one. Property is generally a great means of storing wealth in Pakistan and largely remains undocumented and untaxed. The issue here is that with the FBR imposing and collecting this tax, the federal government is in essence collecting property tax. While the FBR has claimed and is arguing in court that this is an income tax and not a tax on property, the lines are blurry. The content in this publication is expensive to produce. But unlike other journalistic outfits, business publications have to cover the very organizations that directly give them advertisements. Hence, this large source of revenue, which is the lifeblood of other media houses, is severely compromised on account of Profit’s no-compromise policy when it comes to our reporting. No wonder, Profit has lost multiple ad deals, worth tens of millions of rupees, due to stories that held big businesses to account. Hence, for our work to continue unfettered, it must be supported by discerning readers who know the value of quality business journalism, not just for the economy but for the society as a whole.To read the full article, subscribe and support independent business journalism in Pakistan
Informative! This is great
In Pakistan swaths of developed land are kept as plots and files as rent seeking wealth that stops availability and use of developed land for habitation while artificially raising the price of land. Also it expands towns unnecessarily and reduces agricultural land. In most countries including UK developed land is subject to council tax after one year on the basis of deemed rental value with very few exceptions.
Elite including judiciary should not block this tax for common good and the monies collected should be earmarked for developing housing for poor classes.
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