Owners of Farmhouses in Gulberg Greens Islamabad Challenge CVT 

The owners of farmhouses (1000 square yards) located in Gulberg Greens Islamabad have challenged the imposition of the Capital Value Tax on these farmhouses at the Islamabad High Court (IHC).  In this regard, the owners of farmhouses have filed petitions against the Federal Board of Revenue with the IHC.  According to the petitions filed by the owners of farmhouses with the IHC, the petitioners are all owners of residential houses or farmhouses measuring at least 1000 square yards located within the territorial limits of the Islamabad Capital Territory. The Petitioners are all active taxpayers, and their names are presently appearing on the Active Taxpayers’ list maintained by Respondent No. 2, the Federal Board of Revenue (‘FBR,). In compliance with Section 115 of the Income Tax Ordinance 2001, the petitioners have duly declared their assets, including their residential houses/farmhouses in their income tax returns.  The Petitioners are all retired pensioners who rely on their Pensions to meet their day to day living expenses.  Through the instant Petition, the petitioners seek to challenge the legality and constitutionality of section 12 of the Finance Act, 2024, whereby certain amendments have been made to Section 8 of the Finance Act,2022, as well as the Table contained in the First Schedule to the Finance Act,2022.  Through the Impugned Amendment, a so-called Capital Value Tax (‘CVT’) has been imposed on farmhouses (measuring at least 2000 square yards) and residential houses (measuring at least 1000 square yards) (“Impugned Levy”).  The Impugned Levy is to be charged on the basis of the area of the farmhouse or residential house, with different rates having been prescribed depending on the size of the farmhouse or residential house.  The Impugned levy is against the very nature of a Capital Value Tax, which is ordinarily levied on the consideration arising out of some economic activity, such as the sale/ purchase of an asset, as was the case in Pakistan with respect to the CVT that was being levied between 1989 and 2022.  The liability to pay the CVT rests on the purchaser of the asset, i.e., the person paying the sale consideration. The Impugned Levy has no nexus whatsoever with any economic activity. ] The Impugned Levy has been labeled as a Capital Value Tax, however, it has no nexus with the value of the assets identified by the lmpugned Amendment nor with any income actually, or deemed to be, derived from such assets.  Instead, the rate of CVT to be levied is related solely to the size of the asset. As a result, the Impugned Levy is in fact like a tax on immovable property in the guise of CVT, with respect to which the Federation does not have the power to legislate on account of the amendment made to Entry No.50 of the Federal Legislative List (contained in the Fourth Schedule to the Constitution by the 18th Amendment to the Constitution. On account of the said amendment, the power to impose taxes on immovable property was specifically removed from the federal domain.  Pursuant to Section 88 of the Islamabad Capital Territory Local Government Act, 2015 read with the relevant provisions of the Urban Immovable Tax Act, 1958, the power to levy and collect property tax within the territorial limits of Islamabad vests with the Metropolitan Corporation Islamabad (‘MCI”). The MCI substantially enhanced property tax on properties located within the territory limits of the Islamabad Capital Territory.  The Impugned Levy is to be levied with respect to a capital asset that is not generating any income. The Petitioners, and any individual affected by the  Impugned Amendment, are being asked to pay something out of nothing, which by its very nature is unreasonably confiscatory and may eventually force the Petitioners, who are all pensioners, to dispose of their properties to pay off the tax liability associated thereto.  The imposition of the Impugned Levy on certain individuals, including the Petitioners, who own residential houses or farmhouses of a certain size, and not on other individuals/taxpayers is discriminatory and violative of Article 25 of the Constitution which prohibits discrimination and provides for equality of all citizens.  If the Impugned Levy is upheld, the Petitioners will be unlawfully subjected to double taxation with respect to their assets fall within the categories defined in the Impugned Amendment. Firstly, the said assets will be taxed pursuant to the Impugned Amendment in the guise of CVT and secondly, they will be subject to the property tax revised by the MCI pursuant to section 88 of the Islamabad Capital Territory Local Government Act, 2015.  The court should declare the said CVT to be ultra vires the Constitution and strike down the same for being in violation of Constitution.  During the pendency of the petition, the FBR be restrained from taking any coercive action against the Petitioners with respect to the said levy and the petitioners be allowed to file their Income Tax Returns without payment of the Impugned Levy, petitioners added.