The Federal Constitutional Court is hearing a major challenge to the tax on deemed property income. The case questions the legality of Section 7E under Pakistan’s tax framework.
A two-member bench, led by Chief Justice Amin-ud-Din Khan, reviewed multiple appeals. These appeals arose from earlier rulings by various high courts.
The dispute centers on a controversial provision introduced through the Finance Act 2022. It requires property owners to pay tax even without earning actual income.
What Is the Deemed Income Tax?
Section 7E applies to individuals owning more than one property. It assumes that such properties generate rental income, even if they do not.
Under the law, authorities calculate deemed income at 20 percent of the property’s value. This value is determined by the Federal Board of Revenue.
After that, a five percent tax applies to the assumed income. As a result, the total annual tax reaches nearly one percent of the property’s value.
Therefore, property owners must pay tax regardless of actual earnings. This approach has triggered widespread criticism.
Legal Challenge Questions Constitutional Validity
During the hearing, legal counsel strongly challenged the provision. He argued that the tax violates constitutional principles.
According to the counsel, the levy is not a genuine income tax. Instead, it effectively acts as a tax on capital value.
He stated that the federal government lacks authority to impose such a tax. Therefore, he urged the court to declare Section 7E invalid.
The argument focused on constitutional provisions governing taxation powers. These include specific entries in the Fourth Schedule.
Debate Over Constitutional Interpretation
The counsel raised key questions about constitutional classification. He asked whether the tax falls under Entry 50 or Entry 47.
Entry 50 deals with taxes on capital value of assets. Meanwhile, Entry 47 allows taxation on income, excluding agricultural income.
However, the lawyer argued that the levy fits neither category. Consequently, he claimed it cannot survive constitutional scrutiny.
He further explained that the law attempts to blur this distinction. According to him, it disguises a capital tax as an income tax.
Concerns Over Taxing Non-Existent Income
Another major concern relates to fairness in taxation. The law targets properties that do not generate real income.
In contrast, rental properties and active income sources remain outside its scope. Therefore, critics argue that the policy selectively burdens certain asset owners.
The counsel emphasized that authorities cannot label non-existent earnings as income. He argued that such a practice undermines basic tax principles.
Moreover, he stated that taxation must reflect actual economic activity. Otherwise, it risks violating fundamental rights.
Court Proceedings and Next Steps
After hearing detailed arguments, the court adjourned the proceedings. It will continue examining the constitutional validity of the law.
The outcome of this case could have wide-ranging implications. It may reshape how property taxes are structured in Pakistan.
Furthermore, the decision could impact thousands of property owners. Many currently face tax liabilities without generating income.
Conclusion
The challenge to Section 7E highlights growing concerns over tax fairness and legality. It raises important questions about constitutional limits on taxation.
As the case continues, attention remains focused on the court’s final decision. The verdict could redefine the balance between revenue collection and taxpayer rights.
