ISLAMABAD: The Federal Board of Revenue (FBR) has agreed to refund tax collected on deemed income from immovable properties under Section 7E of the Income Tax Ordinance, 2001, following sustained efforts by the Lahore Tax Bar Association's Public Interest Litigation Committee (LTBA-PILC), the committee's chairman, Waheed Shahzad Butt, said.
The FBR has issued a circular formalizing the decision. Butt said the legal community welcomed the move, calling it a step that would ease the burden on taxpayers while sparing the government from costly litigation.
The decision comes after more than four months of correspondence in which Butt repeatedly wrote to the FBR chairman, through FBR members, requesting a formal refund procedure. The push followed a May 7, 2026, ruling by the Federal Constitutional Court (FCC) that declared Section 7E unconstitutional and void from its inception, nullifying all notices and proceedings initiated under the provision since it was introduced through the Finance Act, 2022.
Despite the court's ruling, the FBR had not issued guidance or specified an application process for taxpayers seeking refunds, a gap that, as reported Aug. 31, 2026, left many in a difficult legal and financial position.
In a letter dated Sept. 23, 2026, addressed to all Chief Commissioners of Inland Revenue at large, corporate and regional tax offices, the FBR instructed field formations that requests from taxpayers to revise returns in light of the FCC ruling "shall not be rejected." The letter also directs that refunds resulting from such revisions "shall also be processed expeditiously, in accordance with the applicable law and procedure."
Butt called the move a landmark achievement, noting that the pool of eligible refunds could be substantial since the court struck down Section 7E in its entirety. The provision had imposed a 5% deemed-income tax on the FBR-assessed fair market value of properties worth more than 25 million rupees.
However, Butt cautioned that the FBR's directive applies only to the "single agenda item" of Section 7E revisions and refunds and "shall not be construed as having any application beyond the matter specifically addressed herein."
He noted that a related issue involving the Super Tax under Section 4C remains unresolved. The FCC upheld that provision's validity but excluded certain exempt capital gains, including gains on immovable property held beyond a prescribed holding period, inherited property and other exempt income. The FBR has not yet announced a refund mechanism for those collections, Butt said.
He repeated the LTBA-PILC's earlier proposal that, until a comprehensive refund policy is in place, amounts collected under both Section 7E and Section 4C be credited against taxpayers' 2026 tax liabilities. He urged the FBR to extend the same expedited treatment now promised for Section 7E refunds to the outstanding Super Tax claims.
