Federal Constitutional Court upholds super tax

The Federal Constitutional Court (FCC) upheld on Tuesday the Super Tax under Sections 4b and 4c of the Income Tax Ordinance (ITO), 2001 intra vires to the Constitution.

A three-judge FCC bench, headed by Chief Justice Amin-ud-Din Khan and comprising Justice Syed Hasan Azhar Rizvi and Justice Arshad Hussain Shah after hearing the arguments of the counsel of taxpayers from Karachi Makhdoom Ali Khan, reserved the judgment and at 2 o’clock passed the short order.

Key points:

• Parliament has exclusive authority to determine taxation
• Courts cannot re-determine tax slabs, rates, thresholds, or fiscal policy

The Parliament has exclusive authority to determine taxation under Sections 4(b) and 4(c); courts’ role is limited to interpretation, the FCC declared.

It set aside the High Courts’ judgments striking down or reading down Section 4C. It held that courts cannot re-determine tax slabs, rates, thresholds, or fiscal policy, and that the High Courts committed judicial overreach, violating the doctrine of separation of powers.

Read more: Lawyer submits before FCC: Super tax falls under parliament’s exclusive taxing authority

All appeals filed by the Secretary, the Federal Board of Revenue (FBR), and Commissioner Inland Revenue were confirmed as maintainable.

According to the FBR, the decision would help fetch revenue to the tune of Rs300 billion to the public exchequer through super tax.

The court rejected the appeals filed by taxpayers against the judgments of High Courts relating to Section 4b. It held that Section 4b would applicable from 2015 and Section 4c from 2022 when they were respectively enacted.

Section 4B was inserted in the Income Tax Ordinance, 2001 through the Finance Act, 2015 during the Pakistan Muslim League Nawaz (PML-N) government had introduced Super Tax on rich individuals, association of persons and companies earning income above Rs500 million in the tax year 2015 at rate of 4% of income of banking companies and 3% on other categories for rehabilitation of temporarily displaced persons through Finance Bill (2015-16).

The government inserted Section 4C in the Income Tax Ordinance through Finance Act 2022 to charge the super tax from 13 specific sectors that according to it made windfall gains, taking their total income tax rate to 39%.

The government had imposed the super tax on banks; cement; iron and steel; sugar; oil and gas; fertilisers; LNG terminals; textile; automobile; cigarettes; beverages; chemicals; and airlines.

The super tax under Section 4C was imposed on profits of wealthy corporations whose earnings exceeded Rs150 million, to ease the impact of the rising inflation on the poor.

Several companies then approached all the provincial High Courts and the Islamabad High Court, challenging the super tax.