- The court decides on the Super Tax supplementary income tax under entry 47.
- The judgment indicates that the federal legislative list guarantees constitutionality.
- No super tax to pay when capital gains are already tax free.
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, backing the Federal Board of Revenue (FBR).
However, it excludes capital gains from the sale of real estate or securities held for a specific period, News reported Thursday.
The FCC issued its judgment in a case filed by DG Khan Cement Company Limited and others. This judgment justifies the position taken by the Federation of Pakistan and the FBR.
The FCC has ruled that the super tax is an additional tax on income, drawing its legislative sanction from Entry 47, Part 1 of the Federal Legislative List of the Constitution.
“The necessary corollary to the above is that if a certain category of income is exempt from tax under the law which regulates it, i.e. the Ordinance,” the judgment reads and adds: “For example, where no tax is payable on capital gains arising from the disposal of real estate or securities, either to be held beyond a certain period or inherited or otherwise exempt from the order, no super tax will be payable on these capital gains on the transfer of real estate or securities”.
The FCC ruled that the same principle “applies” to possible capital gains from the disposition of agricultural property, which, even otherwise, cannot be subject to income derived therefrom either through use or through disposition.
Top official FBR sources said the tax machinery has so far collected Rs 290 billion as super tax in the first nine months of the current fiscal year, and it could reach Rs 315 billion by the end of June 2026.
In its comprehensive and detailed judgment of almost 300 pages, the court critically examined several complex tax issues.
The court held that the super tax levied under section 4B (introduced by the Finance Act 2015 for the rehabilitation of temporarily displaced persons from tax years 2015-2022) and section 4C (introduced by the Finance Act 2022 imposed on “high income earners” from tax year 2022) is a valid exercise of the power of taxation of Parliament under Entry 47 of the Federal Act. List of the Constitution of Pakistan, being an income tax.
In the case of section 4B, the court rejected the argument that the levy was a fee and not a tax, holding that the mere mention of a purpose did not automatically make the tax a fee in the absence of any direct service connection with a beneficiary.
The court placed Section 4B squarely in the domain of taxation, validly adopted by the Finance Act, thereby upholding all the judgments of the high courts to this effect.
In relation to the Section 4C super tax, the court further held that the provision is a stand-alone provision with its own charges, assessment and payment mechanism; there is no constitutional obstacle to what is called “double taxation”.
Significantly, the Court reaffirmed the doctrine of judicial deference in tax matters, holding that fiscal wisdom and policy belong to the legislature and that judicial review is limited to questions of legislative competence, constitutional compliance, and freedom from arbitrariness.
In another jurisdictionally important finding, the court held that the FBR and the Commissioner Inland Revenue (if duly authorized) enjoyed the power to initiate and defend proceedings relating to tax matters arising from constitutional challenges.
