Taxpayers across Pakistan are facing operational uncertainty regarding the recovery of taxes paid under the deemed rental income regime, following a landmark ruling by the Federal Constitutional Court that declared the levy unconstitutional. Although the federal government subsequently omitted the provision from the Income Tax Ordinance, 2001 through the Finance Act, 2026, the absence of a designated refund framework has left property owners and businesses without a clear mechanism to retrieve historical payments collected under the invalidated framework.
The controversy stems from the deemed rental income tax originally introduced via the Finance Act, 2022, which levied a twenty percent tax on imputed income calculated at five percent of the fair market value of capital assets, subject to specific statutory exclusions. Industry stakeholders and individual property owners widely contested the levy, arguing that taxing notional asset values rather than actual realized rental earnings exceeded constitutional authority. On May 6, 2026, the Federal Constitutional Court, established under the Twenty-Seventh Constitutional Amendment, ruled the provision ultra vires, effectively striking down the tax on constitutional grounds.
While the legislative repeal in the Finance Act, 2026 formally aligned statutory tax codes with the judicial verdict, lawmakers omitted specific transitional provisions governing past collections. Tax experts highlight that the enacted law lacks an automatic refund procedure or dedicated administrative guidance for processing recovery claims. Consequently, affected individuals and corporate taxpayers must navigate general refund mechanisms under existing sections of the Income Tax Ordinance, 2001, or file manual claims directly with regional field formations of the Federal Board of Revenue.
Legal practitioners and tax consultants have called upon the Federal Board of Revenue to urgently issue comprehensive guidelines establishing a standardized, transparent refund process. Sector analysts emphasize that introducing a clear procedural roadmap is vital to prevent unnecessary litigation, eliminate administrative bottlenecks across tax circles, and ensure equitable relief for taxpayers who complied with the deemed rental regime prior to its judicial invalidation.
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