Proposed Upgrade to IRIS System to Address Immovable Property Tax Challenges

Reforms and Resource Mobilization Commission of Pakistan (RRMC) Chairman Ashfaq Tola has put forward a recommendation for the Federal Board of Revenue (FBR) to enhance its ‘IRIS’ system by introducing an option in the online declaration form to handle the taxation of immovable properties under section 7E of the Income Tax Ordinance, 2001 (ITO).

Section 7E of the Income Tax Ordinance, introduced via the Finance Act 2022, mandates a 20% tax on the amount equivalent to 5% of the fair market value of immovable properties owned by resident individuals, with fair market values exceeding PKR 25 million. This retrospective imposition from the tax year 2022 onwards led to several taxpayers challenging its validity and filing numerous cases in provincial High Courts. 

Responding to the situation, the Supreme Court of Pakistan granted a leave to appeal to the appellant taxpayers against the Sindh High Court’s Order and issued a stay order in favor of the appellants, provided they deposit 50% of the tax demand.

Recently, the Finance Act 2023 (Act 23) introduced an amendment, sub-section (2A) in Section 236C, which now requires evidence of payment of deemed income tax liability on any immovable property before its sale or transfer. However, the Act did not specify the rules and modes for payment, which were later addressed in Circular No. 01 of 2023-24, released by the FBR on July 21, 2023.

To streamline the process and ensure compliance with section 236C (2A), the proposal suggests integrating the properties exempted under section 7E and the effect of the stay order into taxpayers’ online tax particulars. This data can then be shared with the entity responsible for registering immovable properties, facilitating more efficient monitoring and enforcement.

To accommodate the stay order granted by the apex court, taxpayers who have declared property under section 7E on IRIS would have the option to upload a certified copy of the stay order for the applicable tax year in their online declaration. This step would create a digital database of taxpayers benefiting from the stay order, aiding in better record-keeping and tracking.

Moreover, Ashfaq Tola proposed the transition to an online process for obtaining the necessary certificates through IRIS, thereby establishing a digital trail of documents and facilitating the integration of exempted properties and stay orders in the tax particulars. This move is expected to assist the entity responsible for registering immovable properties in ensuring compliance with section 236C (2A) more efficiently.

The suggested upgrade to the IRIS system aims to address the challenges associated with the taxation of immovable properties and provide a more streamlined and digitized approach to manage the tax process effectively.

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