- The court rules the additional Super Tax income tax under Entry 47.
- Sentence says Federal Legislative List gives constitutionality.
- No super tax is payable where capital gains are already exempt from tax.
ISLAMABAD: The Federal Constitutional Court (FCC) of Pakistan has upheld the constitutionality of the super tax introduced under Sections 4B and 4C of the Income Tax Ordinance 2001, upholding the Federal Board of Revenue (FBR).
However, it excluded capital gains from the disposal of real estate or securities held for a specified period, The news reported on Thursday.
The FCC ruled in a case brought by DG Khan Cement Company Limited and others. This judgment vindicates the position advocated by the Federation of Pakistan and the FBR.
The FCC ruled that the supertax is an additional income tax, obtaining its legislative sanction from entry 47, Part 1 of the Federal Legislative List of the Constitution.
“The necessary corollary of the above is that if a particular class of income is exempt from tax under the law regulating it, i.e., the ordinance,” the judgment said, adding: “For example, where no tax is payable on capital gains resulting from the alienation of real estate or securities, whether held beyond a certain period or inherited or otherwise exempt from the ordinance, no supertax shall be payable on such capital gains in the alienation of real estate or securities”.
The FCC ruled that the same principle “shall apply” to any capital gains arising from the disposition of agricultural property, which even otherwise cannot be subject to income arising therefrom either by use or disposition.
Senior FBR official sources said the tax machinery has so far collected Rs 290 billion on account of Super Tax in the first nine months of the current fiscal year, and it could rise to Rs 315 billion by the end of June 2026.
In the lengthy and detailed ruling, almost 300 pages long, the court critically examined several complex tax issues.
The court held that the super tax collected under Section 4B (introduced by the Finance Act, 2015 for the rehabilitation of temporarily displaced persons from fiscal years 2015-2022)) and Section 4C (introduced by the Finance Act, 2022 imposed on “high-income earners” from fiscal year 2022 onwards) is a valid exercise of the taxing power of parliament under Entry 47 of the Federal Legislative List of the Constitution of Pakistan, being a tax on income.
In the section 4B case, the court rejected the argument that the tax was a fee and not a tax, holding that the mere mention of a purpose did not automatically convert the tax into a fee in the absence of any direct link of service with any beneficiary.
The court placed Section 4B squarely within the ambit of taxation, validly passed through the Finance Act, thus upholding all rulings of the higher courts to this effect.
With respect to Section 4C Super Tax, the court further held that the provision is an autonomous provision with its own charge, assessment and payment mechanism; There is no constitutional impediment to so-called “double taxation.”
Significantly, the court reaffirmed the doctrine of judicial restraint in tax matters, holding that tax wisdom and policy rest with the legislature, and that judicial review is limited to questions of legislative jurisdiction, constitutional compliance, and freedom from arbitrariness.
In another jurisdictionally important finding, the court found that the FBR and the Commissioner of Internal Revenue (if duly authorized) enjoy powers to initiate and defend proceedings relating to tax matters arising out of constitutional challenges.
