Supreme Court Grants Interim Relief Against Deemed Income Tax on Real Estate

The Supreme Court of Pakistan said that the 20% deemed income tax on real estate would be put on hold for the time being. This change is likely to hurt efforts to collect taxes since tax officials now have to collect Rs560 billion in a week to meet the revenue goal for the next nine months.

The Chief Justice of Pakistan's Supreme Court, Umar Ata Bandial, has told taxpayers that they only have to pay 50% of their deemed income tax until the court makes a final decision. In an interim decision, the court criticized the Federal Board of Revenue's (FBR) performance and the way it met its goals by focusing on a small number of taxpayers.

The court has also said that the FBR can't do anything bad to taxpayers who have paid half of their tax bill.

The real estate and manufacturing industries filed petitions against Section 7E, which was put in place by the government in June of last year to tax people whose income was equal to 5% of the fair market value of capital assets located in Pakistan. These people now have to pay a 20% tax rate.

The FBR has said that the effective tax rate is 1% and that it wants to get an extra Rs15 billion in revenue. The original estimate was Rs25 billion, but the FBR cut it after the government took some areas out of the tax's reach. The petitioners have argued against this exclusion, saying that it is unfair.

For more information, contact Apex Group.