Pakistan’s top constitutional court has struck down the controversial Section 7E property tax, declaring all collections illegal and giving major relief to builders, investors, and Pakistan’s struggling real estate sector.
WEBDESK – MediaBites News
ISLAMABAD — In a landmark ruling likely to reshape Pakistan’s property and construction industry, the Federal Constitutional Court has declared Section 7E of the Income Tax Ordinance unconstitutional, striking down the controversial tax imposed on certain immovable properties and under-construction real estate projects.
The verdict, announced by a bench headed by Justice Amin-ud-Din Khan, dismissed all federal government appeals seeking restoration of the law, effectively ending the Federal Board of Revenue’s (FBR) authority to collect taxes under the disputed provision.
The court also ruled that all actions, notices, and tax recoveries made under Section 7E are now legally void, with significant implications for taxpayers, developers, investors, and the FBR.
What was Section 7E?
Section 7E was introduced through amendments to Pakistan’s Income Tax Ordinance as part of the government’s effort to broaden the tax net and generate additional revenue from the real estate sector.
Under the provision, a “deemed income” tax was imposed on capital assets, particularly immovable properties owned by individuals, even if those properties were not generating actual rental income.
In practical terms, the law treated certain properties as if they were producing income and taxed owners accordingly. The measure particularly affected:
- Under-construction buildings
- Vacant plots
- Residential and commercial properties
- Investment properties held without rental income
The FBR calculated a notional annual income — generally around 5% of the property’s fair market value — and imposed income tax on that assumed amount.
Why was Section 7E controversial?
The law faced strong resistance from:
- Real estate developers
- Builders and contractors
- Property investors
- Tax lawyers
- Business associations
Critics argued the government was taxing “imaginary income” rather than real earnings, making the law unconstitutional and economically damaging.
Many in the construction industry claimed that the measure discouraged investment, slowed development projects, and increased uncertainty in Pakistan’s already-struggling property market.
Several petitions were filed in different high courts across the country.
Conflicting rulings from high courts
Before reaching the constitutional court, the matter saw contradictory judgments from various high courts:
- The Peshawar High Court declared the provision unlawful.
- The Balochistan High Court also ruled against the law.
- The Islamabad High Court found the section inconsistent with legal principles.
- However, the Lahore High Court upheld the provision as constitutional.
Due to the conflicting decisions, the matter was referred to the Federal Constitutional Court, which reserved its judgment on April 30 after hearing arguments from all parties.
Big relief for Pakistan’s property market
Legal and economic experts say the ruling is expected to provide immediate relief to Pakistan’s real estate and construction sectors, both of which have struggled in recent years due to high taxation, inflation, and declining investor confidence.
Developers believe the decision could revive stalled projects, encourage fresh investment, and improve activity in housing and commercial construction.
The judgment is also expected to trigger fresh legal and administrative questions regarding previously collected taxes under Section 7E and whether affected taxpayers may seek refunds or adjustments.
Analysts say the ruling may compel the government to revisit its broader taxation strategy for the real estate sector while balancing revenue generation with economic growth.
