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FBR Yet to Devise Refund Mechanism for Section 7E Property Tax, Tax Expert Says
Real Estate Analyst
Updated 5 min read
The Federal Board of Revenue has not devised any mechanism to refund taxes collected under Section 7E, the deemed income tax on immovable property, despite the Federal Constitutional Court striking down the entire provision as unconstitutional and void from inception, according to Waheed Shahzad Butt, Chairman of the Lahore Tax Bar Association's Public Interest Litigation Committee, reported 31 August 2026. Butt is seeking a clear, policy level system to enable taxpayers to reclaim amounts already paid or recovered under the levy.
Section 7E, introduced through the Finance Act 2022, targeted properties valued above Rs25 million by imposing a deemed tax at 5 percent of FBR assessed fair market value, treated as notional annual rental income and taxed accordingly. As reflected in earlier property market analysis, this effectively worked out to roughly 1 percent of a property's FBR value collected annually on qualifying vacant or investment plots, while self occupied houses remained exempt.
The Federal Constitutional Court has since struck down Section 7E in its entirety, ruling it unconstitutional and void from inception, and set aside all notices and proceedings initiated under the provision. This is a genuinely significant legal outcome: it means the tax was not merely reduced, adjusted, or reformed going forward, but found to have had no valid legal basis at all from the moment it was introduced, which is precisely why the refund question now carries real weight for every taxpayer who paid under it.
The same court proceedings addressed Super Tax under Section 4C, a tax on high earners' capital gains, though with a different outcome. The FCC upheld Super Tax's constitutional validity overall, but excluded certain exempt capital gains from its scope, meaning the tax cannot be charged on the sale of immovable property held beyond the prescribed holding period, on inherited property, or on other otherwise exempt income. Butt noted that Super Tax refunds would apply specifically wherever the tax was charged on income that should have been exempt under this ruling, a narrower but still genuine refund category distinct from the Section 7E situation.
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Real Estate Analyst
Updated 5 min read
The Federal Board of Revenue has not devised any mechanism to refund taxes collected under Section 7E, the deemed income tax on immovable property, despite the Federal Constitutional Court striking down the entire provision as unconstitutional and void from inception, according to Waheed Shahzad Butt, Chairman of the Lahore Tax Bar Association's Public Interest Litigation Committee, reported 31 August 2026. Butt is seeking a clear, policy level system to enable taxpayers to reclaim amounts already paid or recovered under the levy.
Section 7E, introduced through the Finance Act 2022, targeted properties valued above Rs25 million by imposing a deemed tax at 5 percent of FBR assessed fair market value, treated as notional annual rental income and taxed accordingly. As reflected in earlier property market analysis, this effectively worked out to roughly 1 percent of a property's FBR value collected annually on qualifying vacant or investment plots, while self occupied houses remained exempt.
The Federal Constitutional Court has since struck down Section 7E in its entirety, ruling it unconstitutional and void from inception, and set aside all notices and proceedings initiated under the provision. This is a genuinely significant legal outcome: it means the tax was not merely reduced, adjusted, or reformed going forward, but found to have had no valid legal basis at all from the moment it was introduced, which is precisely why the refund question now carries real weight for every taxpayer who paid under it.
The same court proceedings addressed Super Tax under Section 4C, a tax on high earners' capital gains, though with a different outcome. The FCC upheld Super Tax's constitutional validity overall, but excluded certain exempt capital gains from its scope, meaning the tax cannot be charged on the sale of immovable property held beyond the prescribed holding period, on inherited property, or on other otherwise exempt income. Butt noted that Super Tax refunds would apply specifically wherever the tax was charged on income that should have been exempt under this ruling, a narrower but still genuine refund category distinct from the Section 7E situation.
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More than three months have passed since the Lahore Tax Bar Association's Public Interest Litigation Committee wrote to the FBR Chairman, routed through FBR Members, specifically seeking a notified refund procedure for both levies. According to Butt, the Board has neither issued guidance nor prescribed an application format or forum through which affected taxpayers could actually file a refund claim, leaving the constitutional court's rulings without any practical mechanism for taxpayers to act on them.
Butt is seeking a clear, policy level refund mechanism, and has specifically proposed that amounts already paid be allowed as an adjustment against tax liability for Tax Year 2026, an interim arrangement he suggests could be operationalised through the annual return for that tax year. He has called for field formations to be directed to accept and process such adjustments uniformly across all tax jurisdictions, rather than leaving the matter to the discretion of individual Commissioners or Regional Tax Offices, and warned that continued inaction exposes FBR to further litigation, including complaints before the Federal Tax Ombudsman, as affected taxpayers seek redress for amounts he argues are being unlawfully retained despite clear constitutional court findings against their collection.
Given that Section 7E was struck down in its entirety, the potential refund population is genuinely broad, covering any property owner who paid the tax on a qualifying property valued above Rs25 million at any point since its introduction under the Finance Act 2022. This includes owners of investment plots and vacant land who paid the annual deemed income levy across multiple tax years, not merely those with a single, isolated payment. The Super Tax refund category is narrower, applying specifically to cases where the tax was charged on capital gains from property held beyond the exempt holding period, inherited property, or other legally exempt income.
Given that FBR has not yet published any formal procedure, property owners who paid Section 7E or were charged Super Tax on now exempt capital gains should not assume a refund will be processed automatically. Affected taxpayers should retain complete records of all Section 7E payments made across every relevant tax year, along with FBR assessed values used at the time, and should independently confirm with a tax professional whether their specific circumstances fall within the Super Tax exemption categories identified by the constitutional court. Given the current absence of a notified procedure, taxpayers may need to file individual applications or complaints, potentially including recourse to the Federal Tax Ombudsman as Butt has suggested, rather than waiting for an automatic, system wide refund process to be announced.
Section 7E specifically targeted higher value immovable property and investment focused land holdings, meaning this unresolved refund question carries direct relevance for exactly the segment of property owners most likely to hold multiple plots or higher value real estate as investment assets. The prolonged uncertainty around how, or whether, these amounts will actually be returned adds a genuine layer of unresolved risk for affected owners, and the eventual resolution, or continued absence of one, could influence how comfortable investors feel about future tax policy stability in Pakistan's higher value property segment specifically.
More than three months have passed since the Lahore Tax Bar Association's Public Interest Litigation Committee wrote to the FBR Chairman, routed through FBR Members, specifically seeking a notified refund procedure for both levies. According to Butt, the Board has neither issued guidance nor prescribed an application format or forum through which affected taxpayers could actually file a refund claim, leaving the constitutional court's rulings without any practical mechanism for taxpayers to act on them.
Butt is seeking a clear, policy level refund mechanism, and has specifically proposed that amounts already paid be allowed as an adjustment against tax liability for Tax Year 2026, an interim arrangement he suggests could be operationalised through the annual return for that tax year. He has called for field formations to be directed to accept and process such adjustments uniformly across all tax jurisdictions, rather than leaving the matter to the discretion of individual Commissioners or Regional Tax Offices, and warned that continued inaction exposes FBR to further litigation, including complaints before the Federal Tax Ombudsman, as affected taxpayers seek redress for amounts he argues are being unlawfully retained despite clear constitutional court findings against their collection.
Given that Section 7E was struck down in its entirety, the potential refund population is genuinely broad, covering any property owner who paid the tax on a qualifying property valued above Rs25 million at any point since its introduction under the Finance Act 2022. This includes owners of investment plots and vacant land who paid the annual deemed income levy across multiple tax years, not merely those with a single, isolated payment. The Super Tax refund category is narrower, applying specifically to cases where the tax was charged on capital gains from property held beyond the exempt holding period, inherited property, or other legally exempt income.
Given that FBR has not yet published any formal procedure, property owners who paid Section 7E or were charged Super Tax on now exempt capital gains should not assume a refund will be processed automatically. Affected taxpayers should retain complete records of all Section 7E payments made across every relevant tax year, along with FBR assessed values used at the time, and should independently confirm with a tax professional whether their specific circumstances fall within the Super Tax exemption categories identified by the constitutional court. Given the current absence of a notified procedure, taxpayers may need to file individual applications or complaints, potentially including recourse to the Federal Tax Ombudsman as Butt has suggested, rather than waiting for an automatic, system wide refund process to be announced.
Section 7E specifically targeted higher value immovable property and investment focused land holdings, meaning this unresolved refund question carries direct relevance for exactly the segment of property owners most likely to hold multiple plots or higher value real estate as investment assets. The prolonged uncertainty around how, or whether, these amounts will actually be returned adds a genuine layer of unresolved risk for affected owners, and the eventual resolution, or continued absence of one, could influence how comfortable investors feel about future tax policy stability in Pakistan's higher value property segment specifically.
