The Finance Act 2026 introduces several taxpayer-friendly reforms aimed at simplifying Pakistan’s tax framework and reducing the tax burden on individuals and investors. Among the most notable changes are the abolition of the deemed income tax on immovable property under Section 7E, of the Income Tax Ordinance, 2001 the withdrawal of Capital Value Tax (CVT) on foreign assets, and significant tax relief for salaried individuals through revised tax slabs and the removal of surcharge provisions.
- Abolition of Tax on Deemed Income from Immovable Property (Section 7E)
One of the most significant developments under the Finance Act 2026 is the abolition of Section 7E of the Income Tax Ordinance, 2001.
Introduced through the Finance Act 2022, Section 7E sought to impose tax on deemed income arising from certain immovable properties, irrespective of whether the owner had actually earned any income from those assets. The provision effectively taxed notional income based solely on ownership of qualifying properties.
Since its introduction, the provision attracted considerable criticism from taxpayers, tax professionals, and legal experts on the grounds that it sought to tax hypothetical rather than actual income. Various constitutional petitions were filed challenging its legality, culminating in the Federal Constitutional Court declaring the provision unconstitutional.
In line with the judicial verdict, the Finance Act 2026 has formally abolished Section 7E. As a result, property owners will no longer be required to pay tax on deemed income attributable to immovable property where no actual income has been earned.
The repeal removes a significant compliance burden and provides much-needed certainty to taxpayers involved in real estate investments and property ownership.
- Abolition of Capital Value Tax on Foreign Assets
Another welcome development is the abolition of Capital Value Tax (CVT) on foreign assets.
The levy was introduced through the Finance Act 2022 and applied to resident individuals holding foreign assets with an aggregate value exceeding PKR 100 million at the end of a tax year. Under the previous regime, qualifying taxpayers were required to pay CVT at the rate of 1% on the value of specified foreign assets, including:
- Foreign real estate
- Foreign bank accounts
- Foreign securities and investments
- Other prescribed offshore assets
The tax was widely viewed as an additional layer of wealth taxation, particularly for individuals already subject to taxation in foreign jurisdictions.
By abolishing CVT on foreign assets, the Finance Act 2026 eliminates an additional compliance obligation and addresses concerns regarding potential double taxation of wealth. The change is expected to provide relief to overseas investors and Pakistani residents with legitimate foreign investments while simplifying annual tax compliance requirements.
- Tax Relief for Salaried Individuals
The salaried class has been one of the most heavily taxed segments of the economy in recent years. Recognizing these concerns, the Finance Act 2026 introduces a much need but little relief to salaried taxpayers.
The Act revises the income tax slabs applicable to salaried individuals by reducing tax rates across various middle and upper-income brackets. These changes are expected to reduce monthly withholding tax deductions and increase employees’ disposable income.
In addition, the Act abolishes the surcharge previously applicable to salaried individuals earning taxable income exceeding PKR 10 million annually. The removal of this surcharge further reduces the effective tax burden on high-income salaried employees.
Collectively, these measures are expected to enhance take-home pay, improve taxpayer sentiment, and provide relief to a segment that has consistently contributed a substantial share of direct tax revenues.
What Do These Changes Mean for Taxpayers?
The abolition of Section 7E and CVT represents a shift away from taxing notional wealth and towards a more income-based taxation framework. At the same time, the relief provided to salaried individuals signals an effort to balance revenue collection with taxpayer affordability.
Taxpayers should nevertheless review their tax positions carefully, as the practical implications of these amendments may vary depending on individual circumstances, asset profiles, and sources of income.
Whether you are a property owner, investor, entrepreneur, startup founder, or salaried professional, obtaining timely professional advice remains essential to ensure compliance and optimize tax outcomes.
How Accounting & Financial Partners Can Help
At Accounting & Financial Partners, we provide comprehensive taxation advisory services, corporate taxation services, international taxation services, accounting advisory services, bookkeeping accounting services, payroll and bookkeeping services, financial analysis services, and financial modeling services for businesses and individuals across Pakistan and international markets.
Our team also supports startups and growing businesses through company incorporation services, bookkeeping services for startups, monthly bookkeeping services, payroll outsourcing, corporate governance advisory, human resources outsourcing services, and other specialized business advisory solutions.
If you require assistance in understanding the impact of the Finance Act 2026 on your business or personal tax affairs, our professionals would be pleased to assist.
Disclaimer
Tax laws in Pakistan are complex and their application depends on the specific facts and circumstances of each case. The amendments discussed above are intended for general informational purposes only and should not be construed as tax, legal, or financial advice.
We strongly recommend consulting a qualified tax practitioner before making any compliance, investment, or tax-planning decisions based on this article.
