In a landmark decision for Pakistan’s real estate industry, the Federal Constitutional Court has declared Section 7E of the Income Tax Ordinance, 2001 unconstitutional, providing major relief to property owners and investors across the country.
The court ruled that Section 7E was “ultra vires” the Constitution, effectively nullifying the controversial tax imposed on immovable properties. The judgment also dismissed all appeals filed by the Federal Board of Revenue (FBR), which had sought restoration of the provision.
Section 7E was introduced through the Finance Act 2022 and imposed tax on deemed income from immovable assets, even if the property generated no actual rental income. Under the law, property owners holding assets worth over Rs. 25 million were required to pay tax based on presumed earnings from those properties.
Chief Justice Aminuddin Khan announced the short order, stating that all actions, notices, and proceedings initiated by the FBR under Section 7E now stand void. The ruling effectively removes tax liabilities previously imposed under the provision.
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The legal battle over Section 7E had resulted in conflicting rulings from various high courts. While the Peshawar and Balochistan High Courts had declared the provision unconstitutional, the Sindh and Lahore High Courts had earlier upheld it. The Constitutional Court’s latest verdict now settles the dispute nationwide.
Tax experts and real estate stakeholders are calling the verdict a major victory for the property sector, arguing that the law unfairly taxed ownership rather than actual income. Many believe the decision will improve investor confidence and boost activity in Pakistan’s struggling real estate market.
The ruling is expected to significantly impact future tax policy related to immovable properties and could force the government to reconsider alternative taxation mechanisms for the real estate sector.
