FPCCI asks FBR to withdraw tax on Immovable property under Section 7E

ISLAMABAD: Federation of Pakistan Chambers of Commerce & Industry (FPCCI) has formally asked the Federal Board of Revenue to withdraw tax on Immovable property under Section 7E.

According to Acting President of FPCCI, Muhammad Suleman Chawla, the entire business, industry, and trade community of Pakistan is of the view that the Section 7E introduced in Income Tax Ordinance (ITO) 2001 has proven to be chaotic for the economic activities.

Under Finance Act, 2022, section 7E was introduced in the Income Tax Ordinance 2001 whereby, for tax year 2022 and onwards, every resident person has been treated to have derived as income, an amount equal to five per cent of the fair market value of the capital asset situated in Pakistan subject to exclusions of the capital assets provided in the law.

The deemed income is chargeable to tax at the rate of 20 per cent. What this means is that on rent or not, anyone who has sizable real estate would pay 20% tax on 5% of the fair market value of that property. This 5% is treated as potential rented income.

As per FPCCI, it has also proved to be futile and ineffective as it only generated Rs. 10 billion revenue in the first year of its implementation. Apart from this the president FPCCI said that “We have lost much more in investor sentiment of the domestic and overseas Pakistanis alike as far as the real estate sector is concerned.”

Chawla pointed out that after Lahore High Court (LHC) judgment, FBR has issued a Circular recently stating that Section 7E will not apply to cases falling under the jurisdiction of LHC, i.e. Punjab.

He said that it is time to listen to the longstanding concerns of the business community over 7E and called upon the caretaker finance minister to instruct FBR to withdraw Section 7E for the rest of the country and earn the goodwill of the business community.

Abolishment of Section 7E in ITO 2001 would prove to be a tangible confidence-building measure for the stakeholders of the country’s economy and will impart a sense of being heard by their government, he added.

Chawla also highlighted that upward revised rates of withholding tax (WHT) on buying and selling of immovable properties have been implemented, i.e. from 1 percent WHT to 3 percent WHT under Sections 236C (Advance Tax on sale or transfer of immovable Property) and 236K (Advance Tax on purchase or transfer of immovable property) respectively. Calling the increase unfair and counterproductive, the acting President demanded that the revised rates should be withdrawn with immediate effect before it inflicts more damage.

He also questioned the rationale and efficacy of repeatedly issuing thousands of income tax notices to the filers over 7E who were subjected to harassment and experienced psychological pressures due to the unfair notices.

Chawla demanded that all existing show cause notices under Section 7E should be withdrawn with immediate effect; wherein a recovery vis-à-vis deemed income of an amount equal to 5 percent of the fair market value has been demanded for the capital assets and immovable properties held by the concerned persons.

He further explained that 7E is a levy of income tax on immovable properties, is a provincial subject under the constitution and is tantamount to double taxation. He said that the real estate and construction sector would suffer directly due to 7E and will result in unemployment and a decline in commercial and economic activities.