FPCCI demands withdrawal of section 7E, revised withholding tax rates on immovable properties

ISLAMABAD: The Federation of Pakistan Chambers of Commerce and Industry (FPCCI) on Tuesday called on the caretaker finance minister Shamshad Akhtar to withdraw Section 7E of the income tax ordinance, which it said was chaotic and ineffective for the economy.

Section 7E, introduced in 2001, imposes a tax on the deemed income of capital assets and immovable properties held by taxpayers.

The FPCCI said the section had only generated 10 billion rupees ($60.5 million) in the first year of its implementation, while hurting the investor sentiment in the real estate sector.

The FPCCI also said that after a Lahore High Court judgement, the Federal Board of Revenue (FBR) had issued a circular stating that Section 7E would not apply on cases falling under the jurisdiction of Punjab, creating an uneven playing field for the rest of the country.

"We have lost much more in investor sentiment of the domestic and overseas Pakistanis alike as far as real estate sector is concerned," Mr. Muhammad Suleman Chawla, acting president of FPCCI, said in a statement.

He urged the finance minister to instruct FBR to withdraw Section 7E for the whole country and earn goodwill of the business community. "Abolishment of Section 7E in ITO 2001 would prove to be a tangible confidence building measure for the stakeholders of country’s economy and will impart a sense of being heard by their government," he added.

Chawla also criticised the revised rates of withholding tax on buying and selling of immovable properties, which he said were unfair and counterproductive. He demanded that the rates be restored to 1 percent from 3 percent.

He also questioned the rationale and efficacy of issuing thousands of income tax notices to the filers over Section 7E, which he said amounted to harassment and psychological pressure.

"Income tax filers and law-abiding citizens need to be facilitated, rewarded and acknowledged – like elsewhere in the world – rather than further squeezed to meet revenue collection targets," he said.

He said that Section 7E was a levy of income tax on immovable properties, which was a provincial subject under the constitution and also tantamount to double taxation. He said that the real estate and construction sector would suffer due to Section 7E, which would affect more than 70 allied sectors and industries. He strongly demanded that all existing show cause notices under Section 7E should be withdrawn with immediate effect.