Upgrade IRIS to address immovable property tax issues
Reforms and Resource Mobilisation Commission of Pakistan (RRMC) Chairman Ashfaq Tola suggested on July 24 that the Federal Board of Revenue (FBR) include an option in its ‘IRIS’ system for taxpayers to address the tax on immovable properties under section 7E of the Income Tax Ordinance, 2001 (ITO).
The Finance Act 2022 instituted Section 7E of the Income Tax Ordinance, which imposes a 20% tax on the amount equal to 5% of the fair market value of immovable properties held by residents with fair market values exceeding PKR 25 million. Several taxpayers challenged the validity of this requirement, which applies retroactively to tax years 2022 and beyond, resulting in multiple cases being lodged in provincial High Courts. The Supreme Court of Pakistan has granted the appellant taxpayers leave to appeal against the Sindh High Court’s (SHC) Order and issued a stay order in favour of the appellants on the condition that they deposit fifty percent of the tax demand.
Recently, the Finance Act 2023 (Act 23) amended Section 236C by adding subsection (2A), making it mandatory to provide proof of payment of the deemed income tax liability on any immovable property prior to its sale or transfer. However, the Act did not specify the payment rules and methods, which were addressed in Circular No. 01 of 2023-24 issued by the FBR on July 21, 2023.
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In order to facilitate the process, it is proposed that the FBR incorporate the properties exempted under section 7E and the effect of the stay order into the taxpayers’ online tax information. This information can then be shared with the entity responsible for registering real estate, allowing for more efficient conformance with section 236C (2A).
Given the stay order issued by the highest court, taxpayers who have declared property under section 7E on IRIS should have the option to submit a certified copy of the stay order for the applicable tax year. This action would establish a digital database of taxpayers who will benefit from the stay.
Ashfaq Tola also proposed moving the process of obtaining the certificate online via IRIS, which would leave a digital trail of the documents and streamline the integration of exempted properties and stay orders in the tax particulars, thereby assisting the entity responsible for registering immovable properties in ensuring compliance with section 236C (2A) more efficiently.
