ISLAMABAD: In a landmark ruling with far-reaching constitutional and fiscal implications, the Federal Constitution Court (FCC) on Tuesday upheld the legality of the controversial super tax, affirming Parliament’s exclusive authority to legislate on taxation matters.
The court declared Sections 4-B and 4-C of the Income Tax Ordinance (ITO), 2001 intra vires the Constitution, making the provisions applicable from the dates they were originally levied at the prescribed rates.
A three-member bench headed by FCC Chief Justice Aminuddin Khan, along with Justice Syed Hasan Azhar Rizvi and Justice Syed Arshad Hussain Shah, announced the much-anticipated short order. The detailed judgment will be issued later.
The ruling was announced in the afternoon following a brief hearing earlier in the day, during which the court reserved its verdict, stating that the decision would be released the same day.
Over 2,200 cases decided
Senior counsel Hafiz Ahsaan Ahmad Khokhar, representing the Revenue Division secretary, said the FCC’s decision resolved over 2,200 long-pending tax cases related to Sections 4-B and 4-C, safeguarding an estimated Rs310 billion in public revenue.
The cases were transferred to the FCC following the passage of the 27th Constitutional Amendment, after remaining pending for years in the Supreme Court, where the matter had undergone 71 hearings.
Appeals before the FCC arose from conflicting judgments of the Sindh, Lahore and Islamabad high courts, where business entities, banks and corporations had challenged the imposition of the super tax, arguing that it was retrospective, discriminatory and amounted to double taxation.
Background of the Super Tax
The super tax was first introduced by the PML-N government in 2015 as a one-time levy through a money bill, aimed at financing the rehabilitation of areas affected by Operation Zarb-i-Azb.
Initially, an additional 5 per cent tax was imposed on annual profits exceeding Rs300 million. In 2022, the scope of the tax was expanded to include individuals earning over Rs150 million annually, with rates going up to 10 per cent.
Under the current structure, banking companies are taxed at 4 per cent, while other sectors are subject to a 3 per cent super tax, with proceeds earmarked for the rehabilitation of temporarily displaced persons.
High Courts found to have overstepped
While Section 4-B had largely been upheld by the high courts, Section 4-C had been read down or struck down in certain rulings on grounds of alleged retrospectivity, inequity, irrational tax slabs and violation of fundamental rights.
Rejecting these findings, the FCC ruled that the high courts had exceeded their constitutional jurisdiction, amounting to judicial overreach and a violation of the doctrine of separation of powers.
The court held that determining tax slabs, rates, thresholds and fiscal policy falls squarely within Parliament’s domain, and courts are limited to interpreting the law rather than reshaping fiscal policy.
Reliefs and clarifications
The FCC confirmed that all appeals filed by the Federal Board of Revenue (FBR) secretary and Inland Revenue commissioner were maintainable while setting aside the impugned high court judgments.
The court upheld the validity of the super tax with specific exclusions for benevolent funds and allowed oil and gas exploration companies to approach the relevant tax commissioner individually for exemptions under the 1948 concession regime, to be assessed on a case-by-case basis.
Declaring both Sections 4-B and 4-C intra vires, the FCC reaffirmed Parliament’s authority to impose taxes and ruled that earlier judgments striking down or diluting Section 4-C were constitutionally invalid.
