The Supreme Court of Pakistan rejected the Federal Board of Revenue’s petition and ordered that Capital Value Tax on immovable property be reduced from 100% to 50% for the petitioner.

A three-member bench led by Justice Umar Ata Bandial heard the case on levy of tax on foreign assets of a resident individual on Monday. The case was made of six similar petitions grouped together.

The tax had originally been levied in Finance Bill 2022 and petitions against it were rejected by the Lahore High Court and Sindh High Court.

The chief justice remarked that any weaknesses in the law would have to examined and broadening tha tax net in Pakistan would require ‘creative taxation’. He added that whatever was done in the case should be done as per the constitution.

FBR officials told the court that the court should proceed with caution as it was case involving billions of rupees and that if the court issued a stay order it would be injustice to those who had already paid the tax. They also argued that if tax matters were struck down by the court, it would create problems in the future.

However, the court said that if anyone wanted to pay 100% tax on immovable property it was up to them, but ordered that the petitioner’s tax be decreased from 100% to 50%.

However, the court added that the order would not apply to movable property.

Taxation on immovable foreign assets

The Finance Bill 2022 had proposed in Section 8(2)(b) that Capital Value Tax should be collected on “foreign assets of a resident individual where the value of such assets on the last day of the tax year in aggregate exceeds Rupees one hundred million.”

The bill also clarified that this to any movable or immovable assets held outside Pakistan including real estate, cash, mortgaged assets and bank accounts.

However, cases had been filed against the tax in both the Sindh and Lahore High Court. The cases had been dismissed in both places.

The petitions had been made on the basis that making a tax for foreign assets owned by someone living in Pakistan was not within the powers of the Parliament. Both courts disagreed with the idea.

“Admittedly the foreign income is not earned within the territorial jurisdiction of Pakistan; but in terms of Constitutional provisions, which empowers the Parliament to levy taxes on income of a resident person; his income abroad is also taxed and such tax has never been disputed before the Court,” the Sindh High Court had said.

The Lahore High Court had made a similar statement and said that only the parliament was empowered to ipose taxes on aggregated assets.

Earlier any dual national person who did not stay in Pakistan for more than 183 days was not subject to be taxed as a resident individual. However, the new law makes this condition irrelevant and provides for all Pakistanis with assets abroad to be taxed.