In a forceful and urgent appeal, the Association of Builders and Developers of Pakistan (ABAD) has demanded the immediate abolition of the highly controversial deemed income tax, enshrined in Section 7E of the Income Tax Ordinance, 2001.
In its comprehensive budget proposals for the fiscal year 2025–26, ABAD has unequivocally labeled Section 7E as a “crippling burden” on the nation’s vital real estate sector. The association warns that this tax is actively stifling investment, precipitating liquidity crises, and unfairly taxing property owners on what it calls “imaginary profits” that have never been realized.
ABAD’s impassioned proposal calls for the complete removal of the deemed income concept, which currently taxes property owners 1% of their asset’s value annually—even in cases where no actual income is being generated from that asset. “This deemed income regime is based on fiction, not fact,” ABAD asserted in its submission. “It taxes what doesn’t exist—an income that’s never realized, never received. It’s an economic injustice.”
According to ABAD, the practical application of this tax effectively imposes a 20% tax on 5% of a property’s fair market value, which translates to a 1% annual tax on the property, irrespective of whether it is rented out or sold. “This is wreaking havoc on ordinary citizens, investors, and retirees who rely on real estate for their savings and future security. It must go,” ABAD emphatically stated.
Section 7E was originally introduced through the Finance Act 2022 as part of a broader drive to expand the tax net and has faced severe backlash and extensive litigation ever since its implementation. The core of the deemed income provision is the assumption that merely owning a capital asset equates to earning income—a concept that ABAD strongly argues is virtually “unheard of in modern tax systems worldwide.”
ABAD’s criticism also extended to Section 7F, which was enforced through the Finance Act 2024 and brought builders and developers under a similar deemed income taxation net. Branding this as bureaucratic overreach, ABAD proposed scrapping Section 7F entirely and replacing it with a transparent, area-based fixed tax model, akin to the existing Sections 7C and 7D.
“Development is an inherently multi-year, approval-heavy process with numerous uncertainties. Gross receipt taxes of 10–15% are unfair and unpredictable, particularly given the long gestation periods,” ABAD explained. “A per-square-yard rate, in contrast, brings much-needed clarity, ensures better compliance, and supports long-term planning and investment in the sector.”
The real estate sector, historically recognized as a fundamental pillar of economic activity and a significant employer in Pakistan, is currently being “suffocated” by the existing deemed income regime, ABAD emphasized. They stressed that these proposed reforms are not merely beneficial for the industry itself, but are absolutely essential for the broader health and recovery of Pakistan’s economy.
The ball is now firmly in the government’s court. The critical question remains: will the authorities heed ABAD’s clarion call and abolish the controversial deemed income provisions before the real estate sector is driven into a deeper and potentially irreversible decline? The industry and countless property owners await the upcoming budget announcement with bated breath.
