Section 7E Income Tax Provision Reduces Pakistan Property Registrations by 95%
The real estate sector is facing
significant challenges due to the implementation of Section 7E of the Income
Tax Ordinance 2001. Section 7E considers 5% of the fair market value of a property
as deemed rental income, which is taxed at 20%.
According to representatives from
the real estate sector, property registrations across Pakistan have declined by
as much as 95% and all property transfers have come to a halt. They attribute
this to the increased taxes and compliance requirements under Section 7E.
The difficulties in completing
property transfers are negatively impacting both local and foreign investors,
with some foreign investors seeking to transfer their capital abroad. Overseas
investors have expressed concerns about their existing property investments in
Pakistan.
The real estate sector
representatives made two recommendations to the National Assembly Standing
Committee on Finance:
1. Either eliminate Section 7E
deemed rental income completely or restrict it to only vacant plots.
2. Allow filer buyers to proceed
with property transfers after submitting an affidavit, while requiring
non-filers to comply with Section 7E before completing the transfers.
Recent Finance Act 2023 amendments
prohibit registering any property transfer unless the seller has complied with
Section 7E tax obligations and provided proof of compliance to the registering
authority.
The Standing Committee on Finance
postponed further discussion on the matter until a future meeting since no
officials from the Federal Board of Revenue (FBR) attended the current meeting
to respond to the real estate sector's concerns.
The Federation of Realtors
Pakistan (FORP) informed the committee that the problems caused by Section 7E
have resulted in capital outflows, as both local and foreign investors seek to
transfer their funds abroad due to the difficulties in completing property
transactions in Pakistan. This has raised concerns among overseas investors
regarding their existing property investments.
