IHC declares section 7E of Income Tax Ordinance 2001 ultra vires

Islamabad High Court strikes down section 7-E of Income Tax Ordinance 2001.

Our team consisting of Sabila Daraz Khan, Aiema Asrar and Fatima Midrar successfully brought a challenge to the vires of the section 7E of the Income Tax Ordinance 2001. ABS & Co’s team represented private clients in several petitions before the Islamabad High Court where section 7E of the Income Tax Ordinance had been challenged on the basis that it is ultra vires to the Constitution of Islamic Republic of Pakistan, 1973.

Section 7E essentially imposed a levy on resident individuals who are considered to have earned income equivalent to 5% of the fair market value of their capital assets, which encompass land and buildings situated within Pakistan. This effectively meant that from tax year 2022 and onwards, a resident person who owns capital assets on the last day of the tax year (i.e. 30th June) with an aggregate fair market value above Rs. 25 million, is liable to pay tax on deemed income. The income was deemed to arise from the ownership of the asset by operation of law.

In its judgment, the High Court declared section 7E of the Ordinance ultra vires to the Constitution, void ab initio. The Court has held that the impugned provision is confiscatory in nature and discriminatory in its effect, and thus constitutes a violation of Article 25 of the Constitution and further is also in violation of Article 23 of the Constitution.

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