“….we are persuaded to hold that Section 7E of the Income Tax Ordinance, 2001, is ultra vires the Constitution, and is accordingly struck down, being void ab initio. For the reasons to be recorded separately, all the civil petitions filed by the taxpayers against the judgments of the High Court of Sindh and the Lahore High Court are converted into appeals and allowed, while civil petitions filed by the FBR/C.I.R against the judgments of the Peshawar High Court and the High Court of Balochistan are dismissed. Consequently, all actions, proceedings, and notices initiated or taken by the FBR/C.I.R under Section 7E are declared to be without lawful authority and are hereby set aside”—Federal Constitutional Court of Pakistan in Sher Muhammad Mughari v The Federation of Pakistan through Secretary Finance Islamabad & others

The short order of the Federal Constitutional Court of Pakistan declaring Section 7E of the Income Tax Ordinance, 2001 [“the Ordinance”] ultra vires the Constitution is not merely another tax judgment. It is one of the most consequential constitutional tax rulings in Pakistan’s history because it exposes the deeper crisis of legislative overreach, fiscal opportunism and disregard for constitutional boundaries that has increasingly characterised federal taxation after the Eighteenth Amendment.

For those who consistently challenged Section 7E of the Ordinance from the moment it was enacted through the Finance Act, 2022, the ruling is neither surprising nor sudden. The constitutional defect was visible from day one. The provision attempted to do indirectly what Parliament could not do directly: impose a tax on immovable property by disguising it as income tax through a legal fiction.

Immediately after enactment, it was argued that Section 7E of the Ordinance was not taxation of income at all, but taxation of ownership of immovable property. The central point was simple. In the wake of the Constitution (Eighteenth Amendment) Act, 2010 [18th Amendment], the constitutional framework placed taxes on the capital value of immovable property outside federal legislative competence.

Entry 50, Part I of the Federal Legislative List (FLL), Fourth Schedule to the Constitution explicitly excludes “taxes on immovable property”. That exclusion was not accidental drafting. It was a deliberate constitutional restructuring after provincial autonomy was strengthened in........

© The Friday Times