Super tax: Constitution doesn’t permit arbitrary legislation, lawyer submits before SC

ISLAMABAD: The Constitutional Bench of the Supreme Court was informed on Monday that Super Tax under Section 4C of the Income Tax Ordinance, 2001, was imposed for raising Rs215 billion for the fiscal space that the federal government desperately needed.

A five-judge larger bench, headed by Justice Amin-ud-Din Khan, heard the appeals of the Federal Board of Revenue (FBR) and the industries against the judgments of the Sindh, Lahore, and Islamabad High Courts regarding the levy of Super Tax under Section 4C.

Advocate Sirdar Ahmed Jamal Sukhera, representing the taxpayers, argued that the Constitution, seen as a whole, does not permit an arbitrary action, including any arbitrary legislation.

Sukhera argued that it is a fact that the Super Tax was imposed to raise Rs215 billion for the fiscal space that the federal government needed, adding that the factors taken into consideration were two. Firstly, last year the government had imposed taxes of Rs350 billion as sales tax, which was levied even on a matchbox, which led to an inflationary impact. Secondly, the high-earning persons have made windfall profits, and Super Tax could be imposed on them to raise the additional Rs215 billion. No other factor was taken into consideration as per the policy statement submitted by the government in the pleadings.

The taxpayers’ counsel contended that, as per the reports of the Cabinet and the World Bank, fiscal space could be created to the tune of Rs1.7 trillion in a year just by aligning the spending of the federal government with the constitutional and legal provisions.

He stated that the state-owned enterprises incur losses between Rs600 and Rs800 billion every year, so Rs215 billion can be raised by curtailing those losses. He said that after the 18th Amendment, several subjects were devolved to the provinces. However, the federal government continues to spend on devolved subjects, adding, as per the World Bank’s report, Rs328 billion could be saved. He further said that according to the World Bank report, another Rs404 billion could be saved by having a treasury single account.

Sukhera said that, as per the admitted figures by the federal government, Rs600 billion is attributable to electricity thefts. By reducing theft or losses of Rs215 billion, the existing high-earning taxpayers’ money could be spared.

He further informed that in terms of the Fiscal Responsibility and Debt Limitation Act, 2005 (FDRLA), the federal fiscal deficit should not go beyond 3.5 percent of Gross Domestic Product (GDP), and the debt to GDP ratio should not exceed 60 percent. In both cases, it is an admitted position that since 2016, these ratios have been blatantly breached.

He submitted that there is a continuing trend by successive governments to ignore the choices and to persist with only the option of increasing the tax rates on existing taxpayers or imposing new taxes on existing taxpayers. This trend is arbitrary, oppressive, manifestly unjust, and as such, violative of due process under Article 10-A, and falls foul of Article 23, which guarantees the property right.

It was argued that ignoring the choices is violative of the ambit of reasonable restrictions. It is unreasonable to persist with this trend and to completely ignore the choices available to the government. The existing taxpayers are already paying 29 percent income tax, 15 percent tax on their dividends, and people who are not in the tax net should be brought into the tax net, and the additional burden of taxes should be proportionately shifted upon them.

He submitted that the federal government has been unable to achieve its targets of tax collection from the retailers. As such, the shortfalls are either shifted to the salaried class or to the high-earning individuals. This is arbitrary, unreasonable, unjust, oppressive, and as such, violates fundamental rights.

At that, Justice Muhammad Ali Mazhar remarked that this point of alternative choices has never been argued before, and this needs consideration in terms of the Constitution.

Sukhera further argued that income determination is a process that requires expenses to be deducted from the revenue earned by a taxpayer. Carry forward of business losses and depreciation are acknowledged deductions permissible under the Ordinance for the determination of income, but the definition of “income” for Super Tax under Section 4C of the Income Tax Ordinance does not permit these deductions. Consequently, these expenses in the shape of depreciation and losses also get included in the amount on which Super Tax is imposed. This amounts to taxing the expenses of the taxpayers and not the income of the taxpayers, and as such, it violates the Constitution.

The case is adjourned until today (Tuesday).

Copyright Business Recorder, 2025