Islamabad, Feb 19: The Islamabad High Court (IHC) has issued a restraining order preventing the Federal Board of Revenue (FBR) from taking any coercive action against owners of residential properties in Islamabad regarding the collection of Capital Value Tax (CVT).
As per the IHC directive, notices have been dispatched to the Federation, including the Attorney General of Pakistan, and the FBR. Until further proceedings, authorities are prohibited from enforcing tax recovery measures against the petitioners.
This legal challenge questions the validity of certain provisions in the Finance Act, 2022, specifically Sections 8(1), 8(2) (clauses (ab) and (ac)), and 8(4), which were amended through Section 12 of the Finance Act, 2024.
The petitioners argue that these amendments contradict Articles 23, 24, and 25 of the Constitution and violate Entry No. 50 of Part-I of the Federal Legislative List in the Fourth Schedule of the Constitution.
The IHC has decided to hear this case alongside Petition No. 2641 of 2024 to ensure consistency. Consequently, the respondents in this petition, including the Attorney General, have also been served notices for representation in the proceedings.
The petitioners contend that Section 12 of the Finance Act, 2024, introduces an unjust taxation system by modifying Section 8 of the Finance Act, 2022, and altering the tax rates outlined in the First Schedule. Under the new provisions, CVT applies to farmhouses spanning at least 2,000 square yards and residential properties measuring 1,000 square yards or more.
The tax rate is determined solely based on the size of the property, without considering its actual market value or any generated income. 
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According to the petitioners, the imposed tax deviates from the core principle of Capital Value Tax, which traditionally applies to financial transactions such as the sale or purchase of assets. Historically, CVT has been levied on the buyer, aligning with economic activities. However, the new amendment imposes tax obligations without any direct link to economic transactions.
Despite being labeled as CVT, the revised tax framework does not rely on asset valuation or associated income, whether real or deemed. Instead, it enforces taxation purely on the physical dimensions of the property.
The petitioners argue that this constitutes a disguised form of property tax, which the federal government lacks the constitutional authority to impose.
The 18th Amendment had explicitly transferred taxation powers on immovable property to provincial jurisdictions by amending Entry No. 50 of the Federal Legislative List.
This case is expected to set a precedent regarding federal taxation powers and the constitutional limits on imposing levies on immovable properties.
