Business Recorder
ISLAMABAD: The Federal Constitutional Court (FCC) is set to take up 319 appeals concerning the interpretation and constitutional validity of Section 7E of the Income Tax Ordinance, 2001, from Monday (Apr 13). A two-member bench, headed by Chief Justice Amin-ud-Din Khan and comprising Justice Ali Baqar Najafi, will hear the appeals, which were transferred to the Federal Constitutional Court from the Supreme Court of Pakistan in view of the 27th Constitutional Amendment. Advocate Hafiz Ahsaan Ahmad Khokhar is representing the tax department. The appeals originate from different High Courts across the country and raise important constitutional questions about the scope of federal taxation powers, the distinction between income and property taxation, and the legality of “deemed income” under Pakistani law. The matter also highlights broader issues of fiscal federalism and legislative competence under the Constitution. Section 7E was introduced through the Finance Act, 2022, as part of wider efforts to expand the tax base and formalize the economy. The provision treats a fixed percentage of the fair market value of certain high-value assets, particularly immovable properties, as deemed income of the owner, regardless of whether any actual income is earned. The law includes specific exemptions for self-occupied residential property, business premises, agricultural land, and other specified categories, along with a statutory mechanism for valuation and computation. The Lahore High Court and the Sindh High Court have upheld the validity of Section 7E, stating that the legislature is empowered to create legal fictions for taxation purposes and that deemed income falls within the scope of Entry 47 of the Federal Legislative List. The courts noted that such measures are recognized tools in modern tax systems to curb tax avoidance and broaden the revenue base. In contrast, the Balochistan High Court ruled against the Federal Board of Revenue, observing that the provision effectively imposes a tax on property ownership rather than on income, thereby raising constitutional concerns regarding legislative competence. Before the Federal Constitutional Court, the appellants have challenged the adverse findings on multiple grounds. They argue that the judgments striking down the provision failed to properly consider established principles of taxation law that allow deemed or notional income. The appellants maintain that Section 7E is a policy-driven anti-avoidance measure intended to discourage speculative and non-productive holding of immovable assets, ensure equitable contribution, and address distortions in the tax system. The Federal Board of Revenue has defended Section 7E, asserting that it falls within the constitutional powers of the federation and aligns with international taxation practices. The law includes safeguards and exemptions to prevent undue hardship and targets only specific asset categories. The outcome of these appeals is expected to provide clarity on the interpretation and application of Section 7E and settle ongoing legal questions regarding the provision. Copyright Business Recorder, 2026
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