LAHORE: The Lahore High Court’s Rawalpindi Bench has acknowledged a legal exemption from advance tax and issued an interim order preventing the Federal Board of Revenue (FBR) from levying this tax on first sales.
Justice Jawad Hassan issued the directive, citing Section 236C (4)(b) of the Income Tax Ordinance, 2001. This section generally mandates the collection of advance income tax on the sale of immovable property from all involved parties.
The case was brought before the court by a prominent housing society located near the motorway in Islamabad. The petitioner argued that the Punjab Land Records Authority (PLRA) was improperly demanding advance tax through its online system for property sales within its project in Rawalpindi, despite the existing statutory exemption.
Justice Hassan’s order highlighted that the specific provision in question clearly states that the advance tax requirement “shall not apply to the first sale of immovable property which has been acquired or allotted as an original allottee, duly certified by the official allotment authority.” The petitioner contended that as the original developer and allottee, they were explicitly covered by this exemption.
Barrister Asad Ladha, representing the petitioner, argued that the PLRA’s demand lacked legal backing and procedural fairness, particularly as no official notification or directive from the FBR had been presented to justify overriding the exemption.
The court concurred, noting that no proper instruction or legal framework was cited to negate the statutory exemption.
While directing the FBR and PLRA to appear at the next hearing on April 28 with complete records, the court granted the petitioner provisional permission to proceed with property transfers for 128 customers. This permission is contingent upon the submission of post-dated cheques and an undertaking to promptly pay any tax ultimately deemed due after the final decision.
Legal experts have viewed this interim order as a positive development for the revival of the real estate sector.
This court development occurs amidst broader discussions regarding real estate taxation. Reports suggest the federal government is considering the abolition of the 3 percent federal excise duty (FED) on the first sale of all immovable properties, less than a year after its introduction in the FY24-25 budget. The FED was applied to the first sale or allotment of residential and commercial properties, including plots, houses, and apartments. The Prime Minister’s Task Force on Housing has reportedly strongly recommended its removal, citing constitutional ambiguities and minimal tax collection since its implementation.
Separately, Prime Minister Shehbaz Sharif recently instructed the FBR to accelerate long-pending tax reforms, including the rollout of a nationwide digital invoicing system for businesses in the coming months.
