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Business Recorder
4 days ago
- Business
- Business Recorder
Rental commercial property: Question arises on legality of taxation by Punjab govt
ISLAMABAD: A question has been raised on the legality of taxation of rental commercial property by the provincial government of Punjab in cases where the same income is already taxed at the federal level, reflecting double taxation. A review of Punjab Sales Tax on Commercial Property by Muhammad Asif Asgher Attorney-at-Law, former Chief Commissioner Inland Revenue/ former Member, Appellate Tribunal Inland Revenue (ATIR) revealed that Punjab's move to tax commercial rentals reflects the broader post-Eighteenth Amendment trend of provincial revenue expansion. However, the constitutional boundaries of such powers- especially where the same income stream is already federally taxed- remains unsettled. The eventual judicial outcome will determine whether this revenue measure becomes a permanent fixture or another short-lived experiment. Muhammad Asif Asgher stated that the Eighteenth Amendment to the Constitution of Pakistan, 1973 brought sweeping changes, the most significant being the omission of the Concurrent Legislative List from the Fourth Schedule. Prior to the amendment, the Federal Legislative List (FLL) contained subjects under exclusive federal competence (Article 142), while the Concurrent List allowed both the Federation and Provinces to legislate. With the deletion of the Concurrent List, legislative power over its subjects was devolved to the provinces. In addition, certain subjects were removed from the FLL itself. Notably, Clause 49 was amended to read: 'Taxes on the sale and purchase of goods imported, exported, produced, manufactured and consumed (except sales tax on services).' This seemingly small bracketed phrase empowered provinces to levy sales tax on services, creating a significant new revenue stream. Tax expert said that following the Eighteenth Amendment, provinces quickly established their own frameworks for taxing services. Punjab enacted the Punjab Sales Tax on Services Act, 2012, and Sindh passed the Sindh Sales Tax on Services Act, 2011. A key drafting challenge was defining 'services' broadly enough to capture emerging transactions. Section 2(38) of the Punjab Act states: 'Service' or 'services' means anything which is not goods or the providing of which is not a supply of goods, and shall include but not be limited to the services listed in the First [or Second] Schedule. This open-ended definition- whether borrowed from India's GST or developed locally — ensured that almost any activity outside the definition of 'goods' could be taxed. Traditionally, a 'service' involves the application of human effort or skill for another's benefit. However, Sindh was first to extend this to letting out of immovable property, reasoning that it did not involve the supply of goods. Amendments were made to include this within the definition of 'service,' and the Sindh Revenue Board began issuing tax notices to landlords. The Sindh High Court, in 2019 PTD 389, faced constitutional and interpretive challenges to taxing immovable property rentals. Rather than directly ruling whether such letting constituted a 'service,' the Court focused on Section 4 (1) (b) of the Sindh Act, which referred only to 'movable property' in defining 'economic activity.' The Court inferred that immovable property was excluded. The Supreme Court, in 2023 PTCL 96, dismissed the Sindh Government's appeal with a single-line observation: 'The mere renting out of property by a landlord to a tenant is not taxable as it is not a taxable service.' Notably, the Court gave no reasoning, leaving the constitutional question open and arguably outside the binding scope of Article 189. Former Member Appellate Tribunal stated both Sindh and Punjab amended their laws to explicitly include immovable property in 'economic activity.' Punjab's change came via the Finance Act, 2018 (effective 1 November 2018). However, Punjab delayed taxing such rentals until Finance Act, 2025, which revised the First Schedule: (i); Exempt: dwellings rented for non-commercial use. (ii); Taxable: dwellings and other immovable property rented for commercial use. The Punjab Revenue Authority has since begun issuing notices to landlords for registration and tax payment. Landlords argued they are already paying income tax on rental income and that this dual taxation is impermissible. One possible ground, relying on 2017 PTD 1 (Pakistan International Freight Forwarders), is that post-Eighteenth Amendment there is no concurrent taxing power: a single taxable event cannot be subject to both federal and provincial levies. Another round of constitutional litigation appears inevitable, Muhammad Asif Asgher added. Copyright Business Recorder, 2025
Business Recorder
11-06-2025
- Business
- Business Recorder
FBR restores two appeals regime
ISLAMABAD: The Federal Board of Revenue (FBR) has restored two appeals regime covering Commissioner (Appeals) and Appellate Tribunal Inland Revenue (ATIR) for the taxpayers through the Finance Bill 2025-26. Through the Finance Bill 2025-26, it is proposed that the two appeals regime would be restored and first appeal would lie before the Commissioner (Appeals) regardless of the amount of tax involved and the second appeal would be filed before the ATIR. In May 2024, through Amendment Act, a single appeal was provided against the assessment order before filing of reference in the High Court. It was explained by the policymakers that trillions of rupees are stuck in tax litigation and the measure would facilitate early settlement. However, the amendment failed to bring the desired result and was criticised by the taxpayers, tax practitioners and the trade bodies. It was observed that assessing officer of Grades BS 16 to 18 can raise tax liability of billions, whereas, Commissioner (Appeals) of BS 20 can hear appeals up to Rs10 million in sales tax and Rs20 million in income tax. Copyright Business Recorder, 2025
Business Recorder
02-06-2025
- Politics
- Business Recorder
Section 122 (5A) ITO: Power granted to IR commissioners is not without boundaries: ATIR
ISLAMABAD: Appellate Tribunal Inland Revenue (ATIR) has held that the powers granted to Commissioners Inland Revenue to amend assessment orders under Section 122(5A) of the Income Tax Ordinance, 2001 are not without boundaries. The ATIR emphasised that the scope of investigation and inquiry under this provision is not open-ended, and must operate within clearly defined restrictions and limitations. In a strongly worded observation, the ATIR remarked that 'justice is a concept of moral rightness based on ethics and rationality,' asserting that unchecked investigative authority undermines both the legal process and individual freedoms. ATIR further stated that the investigative proceedings under the cited provision 'suffer not only from the vice of excessive delegation of legislative authority but also amount to a patent violation of fundamental rights and constitutional guarantees.' The ruling criticised the absence of adequate safeguards and procedural clarity, arguing that this lack opens the door to arbitrary use of power. Tax lawyer Waheed Shahzad Butt says this judgment could set a precedent for future challenges to administrative overreach and highlight the growing need for a balance between state authority and individual constitutional protections. The decision is being welcomed as a reaffirmation of the principles of due process and rule of law. ATIR order stated: 'under Section 122(5A) the scope of investigation and inquiry is not open ended without any restrictions and limitations. Matter of enquiries and fishing and roving inquiries is to be seen in the context of two mandatory prescribed conditions referred in the provision of law. Enquiries cannot be conducted without the presence of twin criteria of 'erroneous & prejudicial to interest of revenue' otherwise there would be no difference between (Regular Audit) Section 177 & (Amendment of assessment) Section 122(5A). Verification of any factual controversy is obviously out of purview of section 122(5A) and requires conduct of audit (if any) under section 177. Creation of tax demand under the umbrella of Section 122(5A) is a blunt violation. There is no concept of 'unfettered discretion' in the fiscal laws and arbitrary exercise of discretionary powers has to be struck down. Justice is a concept of moral rightness based on ethics and rationality, impugned order merits, cancellation, ATIR order added. Copyright Business Recorder, 2025
Business Recorder
29-05-2025
- Business
- Business Recorder
Property case: ATIR slams CTO Islamabad for subpar handling
ISLAMABAD: The Appellate Tribunal Inland Revenue (ATIR) Islamabad, in a significant development has sharply criticized the Corporate Tax Office (CTO) Islamabad for professional incompetence in handling a major taxpayer case related to the property business. The tribunal directed that the concerned officer initiate fresh reassessment proceedings starting from Tax Year 2019, citing serious procedural lapses and misapplication of the law by the CTO tax employees. Sources told that in a recently issued landmark order, ATIR underscored the inefficiency and negligence exhibited in the case by CTO Islamabad and issued stern instructions to ensure strict compliance with statutory provisions under Sections 39(3), 69, 90, 109, 153(1)(b), 113C, and 18(1)(d) of the Income Tax Ordinance. Resident Pakistanis in UAE, UK: Rental income, capital gain not taxable: ATIR DB The ATIR further added that any failure to address these legal obligations would constitute a gross disregard of statutory duty and result in continued loss of public revenue. The directive serves as a clear warning to CTO tax officers to uphold professional standards and enforce tax laws diligently, especially in high-stake cases involving large-scale businesses. Tax experts added that this landmark ruling is expected to prompt a closer review of operational practices within the CTO Islamabad and may set a precedent for greater accountability across other tax offices. The ATIR order states 'Principal business activity of appellant involves real estate marketing, including the sale and purchase of land, plots, apartments, houses, plazas, multi-storied flats, malls, commercial offices, shops, markets, and warehouses. Currently, engaged in the acquisition of land on behalf of Private Company utilizing advances received under a mutual agreement. Assessing Officer is instructed to recharacterise the arrangement as a service agreement and accordingly treat the income as service income under Section 153(1)(b). The income must be subjected to minimum tax at 8% or normal tax at 29%, whichever yields a higher revenue outcome. A substantial amount (Rs.36.1 billion) was recorded as an advance. Investments made in TDRs and PLS accounts. Invoke Sections 39(3), 69, and 90 to assess income in the hands of the true economic owner. Rigorously evaluate all relevant documentary evidence, intercompany transactions, and audited financial statements to ascertain the true economic substance. Failure to address these issues will amount to disregard of statutory duty and continued loss of public revenue: ATIR ordered. Copyright Business Recorder, 2025
Business Recorder
20-05-2025
- Business
- Business Recorder
FBR's binding instructions: Member Legal approached regarding alleged blatant violations
ISLAMABAD: The Federal Board of Revenue (FBR) Member Legal has been approached regarding alleged blatant violations of FBR's binding instructions meant to prevent futile litigation in cases involving the recovery of withholding tax (WHT) defaults in terms of Section 161 of the Income Tax Ordinance, 2001. Concerns have been raised over certain field formations initiating recovery proceedings in apparent disregard of the landmark order passed by the Division Bench-I of the ATIR, as well as the explicit and binding directives earlier issued by the FBR itself. These actions are being viewed by stakeholders as attempts to undermine the authority of both the appellate forum and the FBR's own legal framework. Tax lawyer Waheed Shahzad Butt, speaking to this correspondent, 'emphasized the gravity of the situation. It is imperative that necessary steps be taken to ensure strict compliance with the FBR's binding instructions and the judicial pronouncements of ATIR. Any deviation from these standards amounts to administrative overreach and poses a serious risk to justice,' he stated. According to sources, a formal request has been made to the Member Legal to issue urgent and unequivocal instructions to all concerned field formations, directing them to halt actions that are inconsistent with established legal precedent and the FBR's internal guidance. Observers noted that the matter now warrants immediate and serious attention to prevent further miscarriage of justice and to preserve the integrity of administrative and judicial processes within the tax system It is deeply concerning that the binding instructions issued by the FBR have been openly violated, without any justification or explanation. Such a defiant act reflects either willful disobedience or gross incompetence, both of which are unacceptable and damaging to the credibility of the tax administration. The 161 notices generated under the command of flagship entity of the FBR exhibit a glaring lack of professional diligence and legal awareness. Such conduct not only undermines the integrity of the department but also exposes taxpayers to unlawful proceedings, thereby eroding public trust, Waheed added. Copyright Business Recorder, 2025
