LAHORE: A writ petition has been filed with the Lahore High Court asserting that the federal government is eating up revenues which rightfully belong to local governments.

The petition filed by Ahmad Iqbal Chaudhry, former chairman of the Narowal district council, urges the court to strike down a recent legislation levying income tax on “deemed rental income” of properties.

Filed through legal counsel Umer Ijaz Gillani and Usama Khawar Ghumman, the petition pleads that although the tax levied under the newly-inserted section 7-E of the Income Tax Ordinance, 2001 has been cleverly disguised by the Federal Board of Revenue (FBR) as an “income tax”, it is not a tax on income.

The petition argues that it is a property tax, which represents the single most important source of revenue of local governments all over the world. This is the first time that the FBR has intruded into the domain of property taxes.

Unless this intrusion is checked by the judiciary, the petition says, the fiscal future of local government would be jeopardised, which would violate the object and purpose of article 140A of the Constitution.

It says the new law mandates that every property which is not in the use of the owner, will be “deemed” by the FBR as bearing a rent equivalent to five per cent of the total market value of the property.

This “deemed rental income” would be taxed at a rate of 20pc, the petition adds.

In simple words, every property owner would have to pay a tax equivalent to 1 per cent of the market value of his property to the federal government.

The petition asserts that property tax has remained a provincial subject under all the various constitutions of Pakistan. Furthermore, the provinces have consistently allocated the revenues derived from property tax to the respective local governments where the said properties are situated.

It argues that the right of local governments to the revenue generated from property taxes has remained enshrined in law since the insertion of section 7-E in the Urban Immovable Property Act through Punjab Finance Ordinance, 1971.

The petition asks the court to declare the impugned provision of the law as unconstitutional, illegal and set aside the same.

Published in Dawn, November 16th, 2022