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Property transactions in Pakistan are halted due to Section 7E compliance

Property documentations have all but ceased in Pakistan as a result of the implementation of the legal necessity to comply with section 7E payment.

At a meeting of the National Assembly Standing Committee on Finance held at Parliament House, representatives from the real estate industry in significant cities expressed their concern in this regard.

The Federal Board of Revenue (FBR) is anticipated to release updated valuation tables for immovable assets in August 2023, according to members of the real estate sector.

Transfers and registrations of real estate have been suspended as result of the adoption of section 7E of the Income Tax Ordinance of 2001, which has compounded the situation.

Members of the committee debated whether it would be feasible to amend section 7E of the Income Tax Ordinance of 2001 and if it would be possible to suggest changes to the Finance Act of 2023 during the meeting. The issue was tabled until the following meeting because there was no FBR representative available to address the real estate sector’s questions.

The committee was informed by the Federation of Realtors Pakistan (FORP) that property registers have dropped by up to 95% and that all property transfers in the nation have ceased.

Both domestic and foreign investors are having trouble as result of the tax rise, and money is now being sent overseas. Due of this, foreign investors are cautious about making investments in Pakistan.

The FORP advocated removing the deemed rental revenue under section 7E or, if that wasn’t possible, charging it only on plots. They recommended that non filers should be charged, whereas filers should be permitted to move on with transfers after filing an affidavit.

The Finance Act of 2022 introduced Section 7E, which treats each resident’s income as equal to 5% of the fair market value of any capital assets located in Pakistan with certain exceptions. This considered income is subject to 20% tax rate, which is equivalent to 1% of the fair market value of real estate.

 The transferring authority is prohibited from registering, recording, or attesting the transfer of any immovable property under section 236C of the Ordinance in the Finance Act 2023 unless the seller or transferor has satisfied their tax liability under section 7E and provided proof of such compliance to the transferring authority in the prescribed manner.



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