The Finance Act of 2022 has brought in many changes to the Income Tax regulations in Pakistan. One of the notable changes is the introduction of section 7E, which deals with the “Tax on Deemed Income.” In this article, we will provide an overview of this section and its implications for taxpayers in Pakistan.
Applicability of the Section
It is essential to understand the applicability of this section before delving into its details. Generally, changes in tax laws are applicable from the next tax year, but it is not mandatory. The new tax laws can apply from the current tax year or the next, as stated in the Act. In this case, the Tax on Deemed Income under section 7E is applicable from the tax year 2022 and onwards.
Additionally, this section is only applicable to resident taxpayers in Pakistan. Any resident person will be deemed to have earned 5% of the fair market value of their assets in a tax year, as per this section’s provisions.
Exclusions from the Rule
However, certain exclusions apply to this rule. The exclusions are as follows:
- One capital asset
- Self-owned business premises
- Self-owned agricultural land where agricultural activity is carried out
- Capital asset allocated to:
- A Shaheed or their dependents
- A person or their dependents who died in service of Pakistan Armed Forces or Federal or Provincial government
- A war-wounded person
5. Any property from which tax is chargeable and is paid under the Ordinance
6. Capital asset in the first year of acquisition where 236k tax is paid
If any of the properties mentioned above are owned, then they will not be subject to the deemed income tax. However, if any other properties are left, and the aggregate value of such properties, or any one property value, is more than Rs. 25 million, then the deemed income tax will apply.
Rate of the Deemed Tax
The rate of the deemed tax is 1% on 5% of the fair market value, which means a 20% tax rate is applicable. This tax will be imposed on the value of the asset, regardless of whether the asset generated any income or not.
The new Tax on Deemed Income under section 7E is an important change in the Income Tax regulations in Pakistan. Resident taxpayers should be aware of its applicability and exclusions to avoid any penalties or fines. Additionally, it is important to note that this section may impact taxpayers with a high net worth, especially those who own multiple properties. It is advisable to consult with a tax professional to understand the implications of this section on individual circumstances.