ISLAMABAD: The Federal Constitutional Court (FCC) on Thursday reserved its judgment on the Sindh and Khyber Pakhtunkhwa Development and Infrastructure Cess imposed by the two provinces to develop and maintain infrastructure for the smooth and safe transportation of goods by road.
A two-member bench, headed by Chief Justice Amin-ud-Din Khan, on Thursday, heard the arguments of the KP government and petitioners’ counsels. The lawyers of the Sindh government and of the Sindh taxpayers had completed their submission on Wednesday.
During the proceedings, the Attorney General for Pakistan (AGP) argued that the legislative competence to regulate imports and exports across customs frontiers and to impose customs duties, including export duties, vests exclusively in Parliament under Article 142(a), read with Entries 27 and 43 of Part I of the Federal Legislative List contained in the Fourth Schedule, and not with Provincial Assemblies of Sindh and KP.
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Senior counsel Hafiz Ehsaan Ahmad Khokhar, representing Secretary, Revenue Division/Federal Board of Revenue (FBR), supported and adopted the constitutional position advanced by the AGP.
He contended that the constitutional validity of these levies must be determined by their true nature, charging provisions, taxable event, incidence, and actual operation, rather than their nomenclature or declared infrastructure-development purpose.
He submitted that where the cess operation imposes an additional fiscal burden on international imports or exports through the customs-clearance mechanism, its legislative competence must be examined against the exclusive federal domain under Entries 27 and 43, read with Articles 142 and 163. The involvement of federal customs authorities and the imposition of the cess as a condition of customs clearance further raise questions concerning the constitutional limits of provincial legislation, federal customs administration and Article 151 of the Constitution.
Isaac Ali Qazi, on behalf of the KP petitioners, argued that although Section 3 of the Khyber Pakhtunkhwa Infrastructure Development Cess Act, 2022 (as amended by the Finance Act, 2024) purports to levy the cess on “transportation, carriage or movement” of goods, the levy is in fact attracted on goods exported out of the Province, quantified at 2 percent of the value determined under the Customs Act, 1969, and collected at the export stage.
He contended that duties of customs, including export duties, fall exclusively within the legislative competence of the Federation under Entry 43 of the Federal Legislative List. Import and export across customs frontiers is likewise reserved under Entry 27. He said the Provincial Assembly has no power to legislate in this occupied field under Article 142(c) of the Constitution. Where a provincial law substantially invades a federal field, it is ultra vires notwithstanding incidental references to provincial subjects.
Isaac emphasised that Section 18(2) of the Customs Act, 1969 categorically provides that “No export duty shall be levied on the goods exported from Pakistan.” However, sub-section (3) permits the federal government to impose a regulatory duty by notification. However, no such power is available to a province.
He maintained that the impugned cess, being ad valorem and collected at the point of export, operates as an export duty. It is therefore prohibited even at the federal level and is wholly beyond provincial competence. A province cannot do indirectly what the Federation itself is prohibited from doing directly under the parent federal statute.
Isaac submitted that under the General Agreement on Tariffs and Trade (GATT), 1994, the destination principle requires that domestic taxes are not exported with the goods. Exports are to be zero-rated or fully relieved of domestic consumption taxes. This principle is reflected in the 1970 GATT Working Party Report on Border Tax Adjustments and in Footnote 1 to Article 1.1(a)(1)(ii) of the Agreement on Subsidies and Countervailing Measures.
Pakistan has given statutory effect to this principle through Section 4 of the Sales Tax Act, 1990, which zero-rates goods exported. A provincial ad valorem cess that travels with the exported goods undermines this federal scheme and is inconsistent with Pakistan’s obligations as a Member of the WTO. International obligations, when incorporated into domestic law, must be given effect by the courts.
Even if the levy is styled as a “cess” or “fee” for infrastructure, it must satisfy the tests of primary object, remote quid pro quo, and proportionality. These tests were authoritatively laid down by this Court in M/s Khurshid Soap and Chemical Industries (Pvt.) Ltd. v. Federation of Pakistan (PLD 2020 SC 641).
The counsel argued that a flat 2 percent charge on the customs value of the goods has no rational nexus with the actual use of infrastructure, which depends on weight, volume, distance, and type of vehicle. There is neither a dedicated fund nor any demonstrated correlation between the amount collected and the infrastructure utilised by the particular consignment. The levy therefore fails the proportionality test and is confiscatory in nature.
He contended that Article 151(3) prohibits a Provincial Assembly from making any law that restricts the export of goods from the Province or that discriminates between goods manufactured or produced in the Province and similar goods not so manufactured or produced.
The present levy increases the cost of goods exported from Khyber Pakhtunkhwa as compared to identical goods exported from other provinces, thereby creating a fiscal barrier prohibited by Article 151.
Article 151 must be given a purposive interpretation so as to ensure economic unity of the Federation. A provincial levy that burdens only goods exported from one province, while identical goods from other provinces remain free of such charge, is discriminatory and violative of the freedom of trade guaranteed by Article 151.
Copyright Business Recorder, 2026