Option to levy 10pc super tax: SC CB questions ‘intelligible differentia’
ISLAMABAD: The Constitutional Bench of the Supreme Court questioned intelligible differentia based on which the government opted to impose a 10 percent Super Tax on certain high-earning sectors.
A five-judge larger bench, headed by Justice Amin-ud-Din Khan, on Wednesday heard the appeals of the Federal Board of Revenue (FBR) and the industries against the levy of Super Tax under Section 4C of the Income Tax Ordinance 2001, inserted vide Finance Act, 2022.
The rate of tax under section 4C for companies were fixed; where income does not exceed Rs. 150 million the rate of tax was zero percent of the income; where the income exceeds Rs. 150 million but does not exceed Rs. 200 million the tax rate was 1 percent of the income; where income exceeds Rs200 million but does not exceed Rs. 250 million the tax rate was 2 percent; where income exceeds Rs. 250 million but does not exceed Rs. 300 million then the rate was 3 percent of the income; and where income exceeds Rs300 million rate of tax was 4 percent.
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However, according to the 1st proviso of the section, for year 2022 for persons engage, whether partly or wholly, in the business of airlines, automobiles, beverages, cement, chemicals, cigarette and tobacco, fertilizer, iron and steel, LNG terminal, oil marketing, oil refining, petroleum and gas exploration and production, pharmaceuticals, sugar and textiles the rate of tax shall be 10percent, where the income exceeds Rs. 300 billion.
During the proceedings, Justice Muhammad Ali Mazhar questioned what makes the intelligible differentia based on which sectors were classified, and why the legislature chose to levy a 10 percent Super Tax on certain sectors? He said Section 4C itself is the classification, so why did the FBR make further categories?
FBR counsel Asma Hamid responded that during COVID, some companies flourished exponentially than others and earned windfall profits; therefore, a 10 percent Super Tax was imposed on them. Upon that, Justice Mazhar inquired whether the intelligible differentia is earning more. Asma said the department always has to see how to increase income.
Justice Hassan Azhar Rizvi then said that the easiest way to enhance income is to hike the petrol price. He remarked that instead of encouraging the businessmen and promoting various sectors, the tax rate was increased. Asma responded that when the government wanted to promote any sector,it is exempted from taxes, like for 20 years, the power sector was exempted, but now taxes are levied on it.
Justice Mazhar observed that during the period of Covid, many airlines were closed as people restricted their movement worldwide. He said if the purpose was to increase income, then the tax should be collected from everyone.
Justice Hassan inquired whether the Parliament gave any reason why there was discrimination. Asma replied that the department had data of 2250 entities to the Lahore High Court, but it did not consider it and termed it unverified.
Justice Jamal asked the FBR lawyer why the department increased the tax net, adding that if the government, instead of increasing the tax net increased the rate of tax, then it would discourage the business class, and they would leave the country.
Justice Mazhar said that when the government increases the tax rate, the businessmen, instead of bearing this burden, pass it on to the consumers, thus the general public suffers. Asma replied that the government is collecting this (Super Tax) from their huge profit.
Asma Hamid told the bench that the Sindh High Court (SHC) declared Section 4C discriminatory, while the Islamabad High Court (IHC) judgment said why a distinct class was created and why other sectors were not included for the levy of 10percent Super Tax.
When Asma was arguing whether the petitioners (taxpayers) from Sindh can approach the IHC when the SHC had already decided that issue, Makhdoom Ali Khan, who was representing taxpayers from Sindh, stated that the case before the apex court is whether the 4B and 4C are ultra vires or intra vires the constitution.
Asma contended that if one High Court upholds the statute, while another set aside, then a difficult situation emerges for the FBR todetermine which judgment to follow. She said every year the petitioners challenge the Super Tax before the high courts; therefore, she prayed the bench to settle this matter once and for all.
Justice Jamal Khan Mandokhel inquired from the FBR counsel whether the SHC judgment is binding on other High Courts of the country. She replied no.
Hafiz Ahsaan Ahmed Khokhar, another FBR counsel, stated that most of the petitioners rely on the IHC judgment. He requested the bench to narrow down the issues arising out of the High Courts’ judgments.
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