Federal Constitutional Court upholds super tax, dismisses all petitions

ISLAMABAD:

The Federal Constitutional Court upheld the validity of the super tax on Tuesday, ruling that Section 4B of the Income Tax Ordinance 2015 will remain in force.

FFC Chief Justice Aminuddin Khan read the verdict, noting that the detailed judgment will be issued later, dismissing objections that the case was not maintainable. The court also confirmed that parliament has the authority to levy taxes through legislation.

The FCC dismissed all petitions challenging the super tax. The court ruled that oil and gas sector companies should approach the relevant tax commissioner individually to obtain any exemptions.

The court rejected high court rulings that had declared the super tax discriminatory, affirming that the legislation is legally valid. The court clarified that Sections 4B and 4C, which govern the imposition of the super tax, are fully in line with the law.

It also specified that the tax will not apply to mudarabah, mutual funds, or unit trust funds.

The super tax was first introduced in 2015 in Khyber-Pakhtunkhwa to fund the rehabilitation of terrorism-affected individuals. At that time, an additional 5% super tax was levied on those earning annual profits exceeding Rs300 million. All high courts had upheld its implementation.

In 2022, the super tax was applied to individuals earning over Rs150 million annually, with a maximum rate of 10 per cent. Various businesspersons, banks, and companies challenged the tax in high courts, arguing against its retrospective application and the risk of double taxation.

The FCC has held 17 hearings on the matter. The case was first heard in the Supreme Court in 2019 during the tenure of former Chief Justice Umar Ata Bandial.

Following the 26th Constitutional Amendment, the case was transferred to a constitutional bench, which continued to hear proceedings. After the 27th Constitutional Amendment, the case was moved to the Federal Constitutional Court.

Read: Court adjourns hearing on super tax for Jan 12

Representatives appearing included the Revenue Department's Hafiz Ihsan Khokhar, Karachi Commissioner's Dr Shah Nawaz, and the Lahore Commissioner Asma Hamid.

Khokar told the media that the verdict will bring Rs310 billion to the federal government. “The Federal Constitutional Court has recognised parliament’s authority to legislate,” he said, adding that the high courts had previously exceeded their powers.

Khokhar also noted that the court confirmed there had been no discriminatory treatment through the super tax.

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, textiles and others, citing the need to raise extra revenue for economic stabilisation.

Read more: Super tax amount clearly defined, companies must pay: SC

Petitions were filed before the apex court by individuals and organisations challenging the super tax introduced by the PML-N government in 2015 to raise funds for people displaced by Operation Zarb-e-Azb.

Earlier last year, the top court questioned whether the federal government could distribute super tax revenue to provinces. Lawyers argued the levy, introduced in 2016 to fund displaced persons, has since been extended but no funds have been utilised for the stated purpose.