FTO Takes Action on Property Tax Discrimination
In a major development, the Federal Tax Ombudsman (FTO) has launched an official investigation into claims of unequal enforcement of the deemed income tax on property under Section 7E of the Income Tax Ordinance 2001. This decision comes amid growing complaints from taxpayers and real estate experts who allege biased treatment by the Federal Board of Revenue (FBR) across different provinces.
The complaint, filed by real estate expert Muhammad Ahsan Malik, points to serious inconsistencies in how Section 7E is being applied. While the Supreme Court of Pakistan has granted interim relief in the matter, the FBR’s implementation reportedly remains uneven — especially in Punjab, where taxpayers continue to face deductions not applied elsewhere.
Background on the Deemed Income Tax on Property
The deemed income tax was introduced through the Finance Act of 2022, adding Section 7E to the Income Tax Ordinance. The idea was to tax property owners on an assumed rental income from their real estate holdings — even if they were not actually earning rent.
According to tax experts, this provision was meant to broaden Pakistan’s tax base and target wealth parked in non-productive assets like luxury properties. However, many have argued that it violates constitutional rights and exceeds the federal government’s legislative authority.
Since its introduction, the provision has sparked widespread controversy, with several property owners and legal professionals challenging it in high courts across the country.
Legal Battles and Conflicting Court Rulings
The implementation of Section 7E has faced a storm of litigation. Various High Courts across Pakistan have issued differing verdicts on the constitutionality of this law.
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The Sindh High Court and the Lahore High Court’s Divisional Bench dismissed petitions challenging the provision, effectively allowing its enforcement in those regions.
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Meanwhile, the High Courts of Balochistan, Khyber Pakhtunkhwa, and Islamabad Capital Territory declared Section 7E unconstitutional and outside the scope of federal legislative power.
As a result, the deemed income tax on property is currently not being enforced in Balochistan, KPK, and Islamabad, while Punjab and Sindh continue to apply it — a situation that taxpayers say is discriminatory and unjust.
Supreme Court’s Interim Relief and Pending Appeal
The Supreme Court of Pakistan is now the final authority reviewing this issue. When the Sindh High Court’s ruling was challenged, the apex court did not suspend its judgment but granted interim relief to taxpayers.
Under this temporary order, property owners are required to deposit only 50% of the deemed income tax under Section 7E. The remaining amount will depend on the court’s final decision. If the court rules in favor of taxpayers, the deposited funds will be refunded — but if it rules against them, the remaining tax will become payable.
This temporary measure was seen as a fair compromise while the legal challenge continues. However, the FTO’s investigation highlights that the FBR has failed to apply this relief consistently, particularly in Punjab.
Unequal Application of Tax Rules
One of the main grievances raised in the FTO complaint is the uneven application of Section 7E. While taxpayers in some provinces benefit from the Supreme Court’s interim relief, others continue to face full taxation.
According to the complaint, this inconsistent treatment has resulted in serious financial hardship for property owners in Punjab who find themselves paying more tax than their counterparts in other provinces.
The FTO’s office emphasized that such inconsistent enforcement could amount to maladministration as defined under Section 2(3) of the Federal Tax Ombudsman Ordinance 2000. This law defines maladministration as any act that is arbitrary, discriminatory, or contrary to good governance principles.
FBR’s Response and Ongoing Investigation
The FTO has issued formal notices to FBR Members and the Chief Commissioner of the Inland Revenue Regional Tax Office in Islamabad to respond to the allegations. The FBR has been directed to submit detailed comments and justifications for the different treatment of taxpayers in various regions.
The investigation aims to determine whether the FBR’s actions — or inaction — have violated Article 25 of the Constitution of Pakistan, which guarantees equality before the law.
Legal experts believe that this inquiry could have significant implications for Pakistan’s tax administration system, potentially leading to a uniform nationwide policy on the deemed income tax.
Impact on Real Estate Sector and Investors
The deemed income tax has already disrupted Pakistan’s real estate market. Many investors have delayed or canceled property transactions due to uncertainty over how the law will be applied.
Real estate analysts argue that inconsistent taxation policies undermine investor confidence, discourage documentation of property assets, and may even push real estate investments into informal channels.
With the FTO probe underway, there is renewed hope that the government will establish clearer guidelines for how Section 7E should be implemented — ensuring fairness and transparency across all provinces.
What Section 7E Means for Property Owners
Section 7E applies to immovable capital assets owned by residents of Pakistan. The law assumes that the owner earns a notional rental income, which is then taxed even if the property remains vacant or unutilized.
For example, if a person owns several residential or commercial plots, the law treats them as earning an estimated income based on the property’s market value. Tax is then imposed on this “deemed income.”
Critics call this measure unrealistic and unfair, especially for owners who do not actually generate income from their properties. Supporters, however, argue that it’s an essential step to bring wealthy non-filers into the tax net.
Expert Opinions on the FTO’s Decision
Tax experts and legal analysts have widely supported the FTO’s intervention, calling it a much-needed step toward ensuring equal tax treatment across Pakistan.
According to experts, the issue goes beyond taxation — it’s about restoring trust between citizens and tax authorities. Arbitrary application of laws, they argue, creates confusion, reduces compliance, and weakens Pakistan’s revenue system.
Many believe that the FTO investigation could set an important precedent for tax fairness, especially in cases where court decisions differ among provinces.
Possible Outcomes of the Inquiry
If the FTO concludes that the FBR indeed discriminated among taxpayers, the agency may be directed to:
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Extend the Supreme Court’s 50% relief to all affected taxpayers nationwide.
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Ensure uniform interpretation and enforcement of Section 7E across all provinces.
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Review internal procedures to prevent maladministration in future tax enforcement.
Such steps could not only bring relief to thousands of property owners but also help standardize property taxation across Pakistan.
The Bigger Picture – Need for Uniform Tax Policy
Pakistan’s tax system has long been criticized for inconsistencies across regions and sectors. The ongoing FTO probe into property tax treatment has reignited the debate about tax uniformity and fairness.
A clear, transparent, and consistent policy could significantly improve compliance and reduce the number of cases ending up in court. Experts say this is crucial if Pakistan aims to increase its tax-to-GDP ratio and achieve long-term fiscal stability.
Conclusion – A Step Toward Tax Fairness
The FTO’s decision to investigate the FBR’s handling of the deemed income tax marks an important moment for taxpayers seeking equal treatment under the law. The outcome of this probe could reshape how property taxation is administered across Pakistan.
For now, property owners, investors, and legal observers are closely watching the case. Whether this leads to nationwide uniformity or further legal battles, one thing is clear — the FTO’s proactive approach is a positive step toward accountability, transparency, and fair taxation practices in Pakistan.
