SC Ruling Eases Tax Burden on Real Estate: Interim Relief Granted Against Deemed Income Tax

ISLAMABAD: The Supreme Court of Pakistan, on Wednesday, announced the provision of temporary respite from the imposition of a 20% deemed income tax on real estate. 

This move is expected to negatively impact revenue collection efforts, as tax officials are now tasked with the daunting challenge of gathering Rs560 billion within a week to meet the nine-month revenue target.

The Supreme Court of Pakistan, headed by Chief Justice Umar Ata Bandial, has granted taxpayers permission to pay only 50% of their assessed deemed income tax until a final decision is reached by the court. 

In an interim decision, the court criticized the Federal Board of Revenue (FBR) for its performance and for focusing on a limited taxpayer base to meet its targets. 

The court has also barred the FBR from taking any adverse action against taxpayers who have deposited half of the assessed tax. 

This decision comes after the realty and manufacturing sectors filed petitions against Section 7E, which the government introduced in June of last year to impose taxes on people who earned income equal to 5% of the fair market value of capital assets situated in Pakistan, who are now charged a tax rate of 20%. 

The FBR has stated that the effective tax rate is 1%, and it aims to collect additional revenue of Rs15 billion. The estimate was originally Rs25 billion, which the FBR reduced after the government excluded some sectors from the scope of the tax. 

The petitioners have contested this exclusion, terming it discriminatory legislation.

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