LAHORE: The Federal Board of Revenue (FBR) has yet to establish a formal mechanism for refunding taxes collected under Section 7E and Super Tax imposed under Section 4C of the Income Tax Ordinance.
Waheed Shahzad Butt, Chairman of the LTBA Public Interest Litigation Committee (LTBA-PILC), has called on the FBR to introduce a clear and uniform procedure allowing taxpayers to claim refunds or adjust taxes already paid under the two provisions.
According to Butt, more than three months have passed since he approached the FBR Chairman through the Board’s relevant members, seeking a notified procedure for processing such claims. However, the FBR has not yet issued detailed instructions, an application format, or designated a forum for taxpayers seeking refunds.
The issue arose following rulings of the Federal Constitutional Court (FCC) concerning Section 7E, which imposed deemed income tax on immovable property.
The FCC struck down Section 7E in its entirety, declaring the provision unconstitutional and void from its inception. The ruling also set aside notices and proceedings initiated under the provision, which was introduced through the Finance Act 2022.
Section 7E had imposed tax on deemed income from certain immovable properties, particularly properties with values exceeding Rs25 million, based on five percent of the FBR-assessed fair market value.
Butt said the court’s decision creates a potentially broad refund claim for taxpayers who had paid or had taxes recovered under Section 7E.
Regarding Super Tax under Section 4C, the FCC upheld the constitutional validity of the provision but excluded certain exempt capital gains from its scope.
Accordingly, Butt said, Super Tax should not apply where income arises from exempt capital gains, including certain gains relating to the sale of immovable property held beyond the prescribed holding period, inherited property, or other income specifically exempt under the law.
He argued that the FBR’s continued failure to provide a refund mechanism has created uncertainty for taxpayers who may be entitled to recover taxes collected under provisions affected by the court rulings.
The LTBA-PILC has proposed that taxpayers should also be allowed to adjust eligible amounts against their tax liabilities for Tax Year 2026.
Butt suggested that the adjustment facility could be incorporated into the annual income tax return for Tax Year 2026. He further called for FBR field formations across the country to process such claims under a uniform procedure instead of leaving decisions to individual Commissioners or Regional Tax Offices.
He urged the FBR to immediately communicate the procedure for claiming refunds or adjustments of taxes collected under Section 7E and the affected portion of Super Tax under Section 4C.
Butt warned that continued delays could lead to further litigation, including complaints before the Federal Tax Ombudsman (FTO), as taxpayers seek recovery or adjustment of amounts they believe were unlawfully collected or retained following the constitutional court’s decisions.
