Section 7E Tax 2026-27: Struck Down

Section 7E is not payable for any year. The Finance Act 2026 omitted it from tax year 2027, and the Federal Constitutional Court (Chief Justice Aminuddin Khan and Justice Ali Baqar Najafi), in C.P.L.A. 1442-K/2022, held it ultra vires the Constitution and void ab initio: in substance a tax on the capital value of immovable property, outside the Federal Legislature's competence. The short order came on 7 May 2026 and the 92-page judgment on 16 June 2026; taxpayers' petitions were allowed and the FBR's dismissed. As reported, proceedings, assessments, demands and notices under it stand annulled.

The judgment reports do not deal with tax already paid. On 23 September 2026 the FBR wrote to all Chief Commissioners that requests to revise returns in the light of the ruling shall not be rejected and the resulting refunds shall be processed expeditiously under the law and procedure (as reported by Bol News; the letter itself was not found). The figure below can be checked against the amount in such a claim.

As enacted by the Finance Act 2022 (and amended by the Finance Act 2023), for tax year 2022 onwards a resident person was treated as deriving income equal to 5% of the fair market value of capital assets in Pakistan held on the last day of the tax year (30 June), taxed at 20% under Division VIIIC: 1% of the value a year. The section says tax year 2022; the reports of the judgment speak of tax year 2023.

Excluded (section 7E(2)): (a) one capital asset owned by the person; (b) self-owned business premises from which business was carried on during the year by a person on the Active Taxpayers' List; (c) self-owned agricultural land under cultivation, but not a farmhouse and the land annexed to it; (d) an asset allotted to a Shaheed of the armed forces or their dependants, a person who died in service of the armed forces or a government or their dependants, a person war-wounded in such service, or an ex-serviceman, serving member, ex-employee or serving employee who is the original allottee, certified by the allotment authority; (e) property whose income is chargeable to tax and the tax paid on it; (f) an asset in its first tax year where section 236K tax was paid on buying it; (g) everything, where the assets left after (a) to (f) are worth Rs 25 million or less; (h) assets of a provincial or local government; and (i) assets of a local authority, a development authority, or builders and developers for land development and construction registered with the Directorate General of Designated Non-Financial Businesses and Professions. The Federal Government could include or exclude any person or property (section 7E(3)); this page models no such order. Clause (g) is all or nothing: at Rs 25 million or less nothing was charged, and one rupee above it the whole amount was, not only the excess.

For a person not on the Active Taxpayers' List, other than one covered by rule 2 of the Tenth Schedule (not required to file), exclusions (a), (e), (f) and (g) did not apply (proviso to section 7E(2)). The proviso was added by the Finance Act 2023, in force from 1 July 2023, so it first reached assets held on 30 June 2024 (tax year 2024); for tax years 2022 and 2023 a person off the list kept those exclusions.

Capital asset meant property of any kind, but not stock-in-trade, consumable stores or raw materials, shares or securities, property on which depreciation or amortisation is allowed, or other movable assets (section 7E(4)(a)). A farmhouse was a house on at least 2,000 square yards with at least 5,000 square feet covered, used as a single dwelling with or without an annex; where a compound has several dwellings averaging more than 2,000 square yards each, each is a separate farmhouse (section 7E(4)(b)). Fair market value is the value section 68 gives: the FBR's notified value for the area (section 68(4)), or where the FBR has notified none, the value fixed for stamp duty (section 68(5)).

The text still asks for it. Other provisions still name section 7E. Section 236C(2A) still bars registering a property sale without evidence that the section 7E tax was discharged, and clause (ab) of section 8(2) of the Finance Act 2022 (capital value tax in Islamabad) borrows its farmhouse definition; neither had been amended in FBR's text to 30 June 2026, and no FBR instruction on section 236C(2A) after the judgment was found.