Justice Aminuddin Khan. PHOTO: ARCHIVE
ISLAMABAD:
The Federal Constitutional Court (FCC) has given the first major relief to the federal government by ratifying sections 4(b) and 4(c) of the Income Tax Ordinance 2001, which is estimated to add Rs 310 billion to government revenue.
A three-member FCC bench headed by Chief Justice Amin-ud-Din Khan issued a short order after 17 hearings in the super tax case.
Earlier, the Constitutional Bench of the Supreme Court headed by Justice Khan had held more than 50 hearings. The matter was later transferred to the FSC after the new court was formed under the 27th Constitutional Amendment.
Around 2,200 long-pending tax cases related to sections 4(b) and 4(c) of the Income Tax Ordinance, 2001 have been disposed of after this brief order.
The court has reaffirmed the exclusive legislative jurisdiction of parliament in tax matters by overturning the rulings of the Islamabad High Court (IHC) as well as the high courts of Lahore and Sindh.
The cases arose from tax liens under Section 4(b) for fiscal year 2015 and Section 4(c) for fiscal year 2022. While Section 4(b) had largely been upheld, Section 4(c) had been read down or struck down in some higher court rulings on the grounds of alleged retrospectivity, discrimination, unreasonableness of tax rates, double taxation, and inequity.
Senior lawyers including Makhoom Ali Khan, Khalid Jawed Khan and Dr Farogh Naseem appeared on behalf of private entities. Hafiz Ahsaan Ahmad Khokhar, Asma Hamid and Ashtar Ausaf Ali represented the Federal Board of Revenue (FBR) and other government officials.
A former legal officer, who represented the private clients in this case, said the Section 4(b) petitions were weak as all three high courts had upheld the collection of super tax under Section 4(b).
In that sense, the FCC’s decision seems correct since the petitioners had a very weak case. However, in Section 4© cases for tax year 2022, all higher courts had decided in favor of taxpayers.
“I think the FCC’s decision on 4© is difficult to justify and seems like undue support to the FBR and the government. The role of the court is to interpret the law on established principles and not to act as the recovery wing of the government, which seems to have happened here,” he said.
He said that in light of the discrimination against 15 industries subject to a higher supertax rate, the FCC should have rescinded the provision in time.
The individual and divisional benches of three high courts, comprising some of the best tax experts, were unanimous in declaring this blatant discrimination ultra vires.
“The only relief given by the FCC is to extraction companies that had foreign arbitration clauses in agreements with the government that would have resulted in international awards against the government,” he said.
A former judicial official said the ruling will erode taxpayer confidence in the judicial system, which is already at its lowest level in many decades.
Another lawyer claimed that the FBR will recover 200-300 billion. However, the economy will be affected overall as businesses begin to close and relocate to other countries such as Bangladesh, Sri Lanka and Indonesia.
“It does not make commercial sense to invest in Pakistan, where not only the cost of doing business is higher but the taxes are expropriatory,” he added.
Hafiz Ahsaan Ahmad Khokhar defended the FCC order, saying it would protect substantial revenues, clarify the limits of judicial review, strengthen parliamentary supremacy, uphold the doctrine of separation of powers, and establish binding precedent for future tax disputes.
It should be noted that none of the three FCC judges had any tax-related experience, nor had they authored a single reported ruling on any major tax matter.
