Non-ATL individuals lose benefits of capital asset exclusions

August 02, 2023 (MLN): The government has imposed restrictions on non-ATL (Active Taxpayer List) individuals from claiming certain benefits of capital asset exclusions under section 7E of the Income Tax Ordinance, 2001.

Section 7E was introduced through the Finance Act, 2022, with the provision that every resident person should treat, as income, an amount equivalent to 5% of the fair market value of capital assets located in Pakistan.

However, certain capital assets, either in their entirety or up to a monetary limit of Rs25 million, were excluded from the scope of tax chargeable under sub-section (2) of this section.

A recent amendment added a new proviso to section (2) of section 7E, restricting the benefits of capital asset exclusions to only ATL persons. These exclusions apply to:

• one capital asset owned by the resident person;
• any property from which income is chargeable to tax under the Ordinance and tax leviable is paid thereon;
• capital asset in the first tax year of acquisition where tax under section 236K has been paid;
• where the fair market value of the capital assets in the aggregate, excluding the capital assets mentioned in the above clauses does not exceed Rs25m.

It's important to note that this new proviso will not apply to individuals covered under rule (2) of the Tenth Schedule to the Ordinance, who are not required to file an income tax return under section 114 of the Ordinance.

This move aims to ensure fairness and compliance in the tax system, encouraging individuals to be on the Active Taxpayer List to enjoy certain exemptions related to capital assets.

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