'Heavy taxes driving businesses out'

Counsels for companies conclude arguments during hearing of super tax case before FCC

ISLAMABAD:

Counsel for exporters and tobacco companies on Monday argued before the Federal Constitutional Court (FCC) that excessive taxation is forcing businesses to move out of the country."

A three-member FCC bench, led by Chief Justice Amin-ud-Din Khan resumed hearing of the super tax case at its temporary premises—the Islamabad High Court (IHC).

During the hearing, counsel for various exporter companies, Rashid Anwar, completed his arguments, while Ijaz Ahmed, representing tobacco companies, also concluded his submissions.

Advocate Anwar told the court that the IHC had previously ruled that tax could not be levied at less than 15 percent or more than 55 percent.

However, he argued, tax exceeding 55 percent is currently being collected. He maintained that excessive taxation is forcing businessmen to relocate their businesses to low-tax jurisdictions such as Dubai, as current tax rates leave little room for profit.

He said exporters are presently paying up to 61 percent in taxes. Counsel for tobacco companies argued that out of a retail price of Rs130 per pack of cigarettes, Rs98 is collected as tax, while a pack sold for Rs48 carries a tax burden of Rs40.

Responding to these claims, Federal Board of Revenue (FBR) counsel Asma Hamid said the figures presented by the petitioners did not match official records. The petitioners also argued that the government had selectively imposed super tax on certain sectors while exempting others.

Justice Amin-ud-Din Khan observed that it is within the government's discretion to include or exclude any sector from taxation. The petitioners maintained that tax classification should be based on income rather than business sectors.

The court noted that if taxation were imposed solely on income, sector-wise classification would not be possible. The hearing was adjourned and will resume today.

The controversy surrounding Sections 4B and 4C of the Income Tax Ordinance, 2001 constitutes one of the most consequential fiscal and constitutional disputes in Pakistan's recent history.

It involves revenue implications running into hundreds of billions of rupees and raises fundamental questions about parliament's taxing power, equality before the law, and the scope of judicial review in fiscal matters.

Section 4B was introduced through the Finance Act, 2015, imposing a "super tax" on high-income persons, particularly banking companies and other persons earning income exceeding Rs500 million.

Hafiz Ahsaan Ahmad Khokhar, counsel for the Federal Board of Revenue (FBR), while giving the background of the case, told The Express Tribune that the levy was initially justified as a temporary fiscal measure aimed at generating funds for the rehabilitation of temporarily displaced persons.