PTBA Urges to Resolve Confusion Over Foreign Property Income Tax

The Pakistan Tax Bar Association (PTBA) has called for the formation of a larger bench under Rule 3(2) of the Appellate Tribunal Inland Revenue (ATIR) (Functions) Rules, 2023, to address conflicting rulings on the taxation of foreign property income. The PTBA cites a 1997 precedent that highlighted the risks of “complications, confusion, and chaos” when benches of equal strength deliver contradictory decisions.

The issue centers on whether Pakistani tax residents are liable to pay taxes on rental income and capital gains derived from properties in the UAE and the UK. Conflicting decisions from different benches of the ATIR have created uncertainty for taxpayers and tax authorities alike.

In its communication to the ATIR chairman, the PTBA emphasized the need for uniformity in tax enforcement. It pointed out that the Lahore Registry has, in separate rulings issued in 2022 and 2024, held that foreign property income is not taxable in Pakistan. These decisions contrasted sharply with a ruling by the Islamabad Registry in November 2022, which determined that rental income from UAE properties is subject to tax in Pakistan.

The PTBA argues that such contradictions undermine the stability and predictability of the tax system. It has urged the ATIR to address these disparities by constituting a larger bench that can resolve the issue definitively. The association believes this approach would ensure consistent application of tax policies, safeguarding both taxpayer rights and the integrity of the tax system.

At the heart of the matter is the interpretation of Pakistan’s tax laws concerning foreign-sourced income. While some rulings rely on the principle of territorial taxation, which limits tax obligations to income earned within the country, others take a broader view, incorporating global income into the tax net for residents.

The PTBA’s request aligns with its commitment to fostering a fair and transparent tax environment. It hopes that the formation of a larger bench will lead to a conclusive resolution, providing clarity for taxpayers and setting a precedent for similar cases in the future. Such a step, the association contends, is crucial for avoiding further litigation and ensuring the consistent enforcement of tax laws.

The outcome of this request could significantly impact Pakistani residents owning properties abroad, shaping the taxation landscape for foreign property income and influencing broader tax policy debates.