Temporary Suspension of Deemed Income

Supreme Court of Pakistan Extends Interim Relief on ‘Deemed Income’ Tax Until February 19, 2024

In a recent ruling, the Supreme Court of Pakistan has extended interim relief for petitioners against Section 7E of the Income Tax Ordinance, 2001, concerning the tax on deemed income, until February 19, 2024. This decision comes amidst challenges to the constitutionality of the tax, introduced through the Finance Act, 2022.

Petitioners argue that the tax is unconstitutional, citing lack of federal legislative competence and discriminatory practices. They contend that the tax, applicable to properties exceeding Rs.25 million, imposes a tax on non-existent income, which fails to meet the legal definition of ‘income’ as previously established by the court.

The background of this tax lies in the 2022-2023 budget speech by then Finance Minister Miftah Ismail, aiming to discourage unproductive real estate investments and balance wealth disparity. However, petitioners claim the tax’s imposition was unconstitutional.

No representation from the Attorney General’s office was present, prompting the court to issue a fresh notice. The Supreme Court has also highlighted similar cases pending in other High Courts and seeks their expedited decisions for comprehensive judgment.

The interim relief, initially granted on March 22, 2023, will now continue into the next financial year, with the court warning against further adjournments. The Supreme Court will reevaluate the case after decisions from the respective High Courts, with a day-to-day hearing scheduled post-February 19, 2024.