Major taxpayer win: FCC abolishes controversial property tax under Section 7E

ISLAMABAD: In a major relief for property owners and taxpayers, the Federal Constitutional Court (FCC) has struck down Section 7E of the Income Tax Ordinance 2001, ruling it unconstitutional. The provision had allowed authorities to impose tax on “deemed income” linked to certain immovable properties, even if no actual income was earned.

Introduced through the Finance Act 2022, the law targeted properties valued above Rs 25 million and imposed an effective annual tax on undeveloped or non-rented assets based on their FBR-assessed value.

A two-member FCC bench headed by Chief Justice Aminuddin Khan ruled that the provision exceeded constitutional limits and declared all actions, notices, and proceedings initiated under Section 7E legally invalid.

The court also upheld appeals filed by taxpayers against decisions of the Lahore and Sindh high courts, while rejecting appeals filed by the FBR and tax authorities against rulings from the Peshawar and Balochistan high courts.

The dispute had triggered constitutional challenges across multiple courts, with petitioners arguing that the law effectively imposed a property tax under the guise of income tax and created taxation on unrealised income.

Government lawyers had defended the measure as an effort to widen the tax net and target untaxed wealth, but the FCC ultimately ruled against the provision.