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By virtue of the Finance Act,
immovable property will be subject to deemed income started with the tax year
2022 (July 1, 2021–June 30, 2022), and deemed income must be declared along
with the annual return by November 30, 2022.
Despite the fact that numerous
taxpayers appealed the application of the considered income to higher courts,
however, the Sindh High Court (SHC) dismissed the petitions by ruling issued in
late October 2022, allowing the FBR to levy and collect the tax.
In a circular, the FBR outlined
the fundamentals of taxation of deemed income from immovable property.
In accordance with the FBR, a newsection 7E has been added through the Finance Act of 2022, and starting with
the tax year 2022 and going forward, a resident person is deemed to have
derived income equal to 5% of the fair market value of the capital assets
situated in Pakistan, which will be subject to tax at a rate of 20% under
Division VIIIC of Part I of the First Schedule of the Ordinance.
Following exclusions have been provided to which this section will
not apply:
(i) One capital asset owned by the resident person;
(ii) Self-owned business premises from where the
business is carried out by the persons appearing on the active taxpayer’s list
at any time during the year;
(iii) Self-owned agriculture land where agriculture
activity is carried out by the person but excluding farmhouse and annexed land.
Farmhouse has been defined in this section;
(iv) Capital asset allotted to —
(a) A Shaheed or dependents of a
Shaheed belonging to Pakistan Armed Forces;
(b) A
person or dependents of a person who dies while in the service of Pakistan
armed forces or federal or provincial government;
(c) A
war wounded person while in service of Pakistan armed forces or federal or
provincial government;
(d) An
ex-serviceman and serving personnel of armed forces or ex-employees or serving
personnel of federal and provincial governments who are original allotees of
the capital asset as duly certified by the allotment authority;
(v) Any property from which income is
chargeable to tax under the Ordinance and tax leviable has been paid;
(vi) Capital asset in the first year of
acquisition on which tax under section 236K has been paid;
(vii) Where fair market value of the
capital assets in aggregate excluding capital assets mentioned in serial nos.
(i) to (vi) above does not exceed rupees twenty-five million;
(viii) Capital assets which are owned
by a provincial government or local government;
(ix) Capital assets owned by local
authority, a development authority, builders and developers for land
development and construction subject to the condition that such persons are
registered with Directorate General of Designated Non-Financial Businesses and
Professions.
The contents of Section 7 of the 2001 Income Tax
Ordinance is provided following:
(1) For tax year 2022 and onwards, a
tax shall be imposed at the rates specified in Division VIIIC of Part-I of the
First Schedule on the income specified in this section.
(2) A resident person shall be treated
to have derived, as income chargeable to tax under this section, an amount
equal to five percent of the fair market value of capital assets situated in
Pakistan held on the last day of tax year excluding the following, namely:–
(a) One capital asset owned by the
resident person;
(b) Self-owned business premises from
where the business is carried out by the persons appearing on the active
taxpayers’ list at any time during the year;
(c) Self-owned agriculture land where
agriculture activity is carried out by person excluding farmhouse and land
annexed thereto;
(d) Capital asset allotted to –
(i) A
Shaheed or dependents of a shaheed belonging to Pakistan Armed Forces;
(ii) A person or dependents of the person who dies
while in the service of Pakistan armed forces or Federal or provincial
government;
(iii) A war wounded person while in service of
Pakistan armed forces or Federal or provincial government; and
(iv) an ex-serviceman and serving personal of armed
forces or ex-employees or serving personnel of Federal and provincial
governments, being original allotees of the capital asset duly certified by the
allotment authority;
(e) Any property from which income is chargeable to
tax under the Ordinance and tax leviable is paid thereon;
(f) Capital asset in the first tax year of
acquisition where tax under section 236K has been paid;
(g) where the fair market value of the capital
assets in aggregate excluding the capital assets mentioned in clauses (a), (b),
(c), (d), (e) and (f) does not exceed Rupees twenty-five million;
(h) Capital assets owned by a provincial government
or a local government; or
(i) Capital assets owned by a local authority, a
development authority, builders and developers for land development and
construction, subject to the condition that such persons are registered with
Directorate General of Designated Non-Financial Businesses and Professions.
(3) The Federal Government may include or exclude
any person or property for the purpose of this section.
(4) In this section–
(a) “Capital asset” means property of any kind held
by a person, whether or not connected with a business, but does not include –
(i) Any stock-in-trade, consumable
stores or raw materials held for the purpose of business;
(ii) Any shares, stocks or securities;
(iii) Any
property with respect to which the person is entitled to a depreciation
deduction under section 22 or amortization deduction under section 24; or
(iv) Any movable asset not mentioned in
clauses (i), (ii) or (iii);
(b) “Farmhouse” means a house constructed on a
total minimum area of 2000 square yards with a minimum covered area of 5000
square feet used as a single dwelling unit with or without an annex:
Provided that where there are more
than one dwelling units in a compound and the average area of the compound is
more than 2000 square yards for a dwelling unit, each one of such dwelling
units shall be treated as a separate farmhouse.
