SC questions super tax 'burden on common man'

The Supreme Court questioned the Federal Board of Revenue’s (FBR) handling of the super tax case, with Justice Muhammad Ali Mazhar observing that “the entire burden comes down on the common man”.

A five-member constitutional bench, headed by Justice Aminuddin Khan, took up petitions challenging the imposition of super tax by the Pakistan Muslim League-Nawaz (PML-N) government in 2015 to raise funds for people displaced by Operation Zarb-e-Azb.

Hearing FBR counsel Asma Hamid's arguments on Friday, the court qestioned the impact of the levy on ordinary citizens. 

Hamid apprised the bench that two paragraphs in the Islamabad High Court’s (IHC) decision contradicted each other - one stated no tax would be levied and the other allowed it.

Justice Hasan Azhar Rizvi remarked that the super tax was causing companies loss and questioned policies affecting senior citizens.

Read: No tax payer challenged LHC ruling upholding super tax, FBR tells Supreme Court

The bench also examined deductions from provident funds. Justice Mazhar asked if the funds reached widows, while Justice Rizvi questioned whether companies could transfer amounts to other accounts if widows were the net beneficiaries.

To this, Hamid replied she could guide the court on legal points but did not have knowledge of financial losses or benefits.

Justice Mazhar remarked that the proceedings were turning into an “I’m being attacked” issue, and highlighted procedural complications.

At this, Hamid contended that Sections 4C and 9 of the Income Tax Ordinance, 2001, should be read together, with Section 4C remaining a complete section.

Section 4C of the Ordinance breaks down "income" as the sum of profit on debt, dividend, capital gains, brokerage and commission whereas taxable income as defined by Section 9 refers to the "total income...of the person for the year reduced (but not below zero) by the total of any deductible allowances...for the year".

FBR member Dr Ishtiaq interjection to add that the matter at hand pertained to income, not individual taxpayers. 

Justice Jamal Khan Mandokhail sought clarity on the basis of the petitions and questioned whether objections were formally raised or sprung on after a show-cause notice. 

Hamid replied in the affirmative to the latter and added that she was representing the FBR in 20 other cases pending before the court. 

The bench inquired about the tax rate besides seeking to understand why Sections 4C and 9 read together would not override the definition of income or grant exemptions. 

Hamid maintained that amendments to the law after the 1979 ordinance had already fixed the tax rate. 

Super Tax

The super tax is an additional levy on high-earning individuals, companies, and industries, largely aimed at big corporations. In the 2022–23 federal budget, the government imposed up to 10% super tax on major sectors, including cement, steel, sugar, oil and gas, fertiliser, banks, and textiles, citing the need to raise extra revenue for economic stabilisation.

Petitions challenging the levy have been filed before the top court by individuals and organisations. At the previous hearing the bench was apprised by the FBR that no one had challenged the Lahore High Court’s (LHC) verdict, upholding the legality of the super tax imposed under Section 4C of the Income Tax Ordinance, 2001, while reducing its rate from 10% to 4% for 16 sectors, including banking, and offering partial relief to petitioners.

Earlier this year, the apex court questioned whether the Centre could distribute super tax revenue to provinces, noting that while the levy has been extended since 2016, no funds had been utilised for the stated purpose.

Read More: Supreme Court CB questions distribution of super tax funds to provinces

At a recent hearing, the bench raised concerns over the impact of the super tax on ordinary citizens, Justice Mazhar observing that whether it was a cement bag or a liquefied natural gas shipment, “the entire burden comes down on the common man”.  

“Business will flourish, if we make things easier for people,” he added. 

“Do not discourage taxpayers — when you do, people end up leaving the country,” Justice Mandokhail had cautioned, similarly. 

Hamid had then clarified that only 15 sectors with incomes exceeding Rs300 million were liable for the super tax and that no company had claimed an inability to pay. The bench pressed the FBR to explain why distinctions among taxpayers were created, stressing that budget measures should not shift the burden back onto the public.