Real Estate Tax Burden Reduced by SC Decision: Temporary Relief From Deemed Income Tax

The Supreme Court of Pakistan has granted interim relief against the 20% deemed income tax on real estate, which could negatively impact revenue collection. 

A unique bench headed by Chief Justice of Pakistan Justice Umar Ata Bandial allowed taxpayers to pay only 50% of the assessed deemed income tax until the final decision was made. 

The court criticised the Federal Board of Revenue’s (FBR) focused on an already limited taxpayer base to achieve targets and barred the FBR from taking adverse action against taxpayers who deposited half of the assessed tax. 

The court also questioned the constitutional mandate for the FBR to impose taxes in a provincial domain.

The FBR introduced Section 7E in June 2020 to impose taxes on people with income equal to 5% of the fair market value of capital assets in Pakistan. 

The effective tax rate is 1%, aimed at collecting an additional revenue of Rs15 billion, but the petitioners contested this. The government had set an annual tax collection target of Rs7.640 trillion for the FBR. 

As of Wednesday, the FBR collected Rs4.87 trillion, leaving a balance of over Rs560 billion to order in the remaining six working days.

The FBR struggles to achieve targets despite an Rs170 billion mini-budget and record inflation of 31.5%. The Supreme Court remarked that the FBR was not a trusted organisation and burdened those already paying their taxes. 

The International Monetary Fund may also require Pakistan to take additional revenue measures against any monthly shortfall.

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