Attention has turned to a developing story after the Federal Constitutional Court has issued a detailed ruling declaring Section 7E of the Income Tax Act null and void stating that the imposition of tax is subject to constitutional limitations and fundamental rights, Parliament has no control to impose direct or indirect tax on immovable property. The 92-page judgment was authored by Chief Justice Aminuddin Khan in which the court held that the purpose of Section 7E is not actually to raise revenue but to discourage holding of immovable property.

Context

A broader look at the circumstances reveals why this development is being watched so closely.

Such a tax can not in any case be included in the Finance Bill, the tax can be imposed for any public purpose, the burden of which is shared by the people.

Imposition of tax is not subject to direct benefit to the public, any law can be declared null and void if it violates fundamental rights or exceeds the power of the legislature.

Market Impact

Those with expertise in the area say the timing of this development is particularly notable.

Section 7E imposes a tax on the ownership of immovable property and not income, whereby a tax of five per cent of the value of the property was levied, whether or not it was income-generating.

Significantly, no income tax on ownership of immovable property is inconsistent with fundamental rights.

What This Means

This marks the beginning of a process whose full implications are yet to be determined.

Imposition of tax on fictitious income is against constitutional rights and tax should be applied on real income.

As the story continues to develop, parliament is competent to legislate only in those areas which are subordinate to the Federation, Parliament has no power to impose direct or indirect taxes on immovable property.

Notably, chief Justice Aminuddin Khan has remarked amid the hearing of the PTCL pensioners case that it is not necessary to form a extensive bench against the choice of the Supreme Court, our 2-member bench is sufficient against the decision of the Supreme Court.

At the same time, a two-member bench headed by Justice Amir Farooq rejected the appeal of the Khyber Pakhtunkhwa government and upheld the Peshawar High Court's decision to restore and regularize two dispensers of previous FATA.

Next Steps

What is clear is that this story is not yet over. The coming days and weeks will likely bring additional developments — and additional clarity — on a situation that has already captured significant national attention.