Tax on Deemed Income of Real Estate Challenged in Court

The taxation measure of Rs. 30 billion, enforced through the Finance Act 2022 to levy tax on deemed income of capital and real estate assets, has been challenged in the Lahore High Court (LHC). The LHC issued an order on Wednesday in this regard.

The Lahore High Court (LHC) has dismissed a constitutional petition challenging the consistency of the section 7E (tax on deemed income) of the Income Tax Ordinance 2001. The petition was filed on the premise of legislative incompetence of the Parliament to enact law outside the scope of the Fourth Schedule of the Constitution.

Parliament is not competent to make laws after the 18th Constitutional Amendment 2010, where after, only the provincial legislature is eligible and competent to tax immovable properties. The fundamental objection is that the tax added through section 7E is, in pitch and substance, tax on immovable property.

The petition said that the tax imposed in lieu of the holding and owing of the immovable property, equal to 5 percent of the fair market value of capital assets, when no question of any gain thereupon arises, was an attempt to hoodwink the mandate of entry number 50.

The Lahore High Court (LHC) has issued notice to the Attorney General of Pakistan. The case was re-listed on August 4, 2022, the LHC said in a ruling on Thursday. Questions pleaded call for interpretation of entry number 50 of the Fourth Schedule in the context of section 7E, ibid.