Justice Aminuddin Khan. PHOTO: FILE
ISLAMABAD:
The Federal Constitutional Court (FCC) has provided a first major relief to the federal government by upholding sections 4(b) and 4(c) of the Income Tax Ordinance, 2001, which is expected to add Rs310 billion to government revenue.
A three-member FCC bench headed by Chief Justice Amin-ud-Din Khan issued a short order after 17 hearings in the super-cracks case.
Earlier, the Constitutional Bench of the Supreme Court headed by Justice Khan had conducted more than 50 hearings. Later, the case was transferred to the FSC after the new court was established under the 27th Constitutional Amendment.
Around 2,200 long-pending tax cases relating to sections 4(b) and 4(c) of the Income Tax Ordinance, 2001 were disposed of after this brief delay.
The bench reaffirmed the exclusive legislative jurisdiction of Parliament in matters of taxation by setting aside the judgments of the Islamabad High Court (IHC) as well as the Lahore and Sindh high courts.
The cases arose out of tax levies under Section 4(b) for FY 2015 and Section 4(c) for FY 2022. While Section 4(b) had been largely upheld, Section 4(c) had been interpreted or struck down in some high court decisions due to alleged retrospectiveity, discrimination, irrationality of tax slabs, double taxation and unfairness.
Senior lawyers including Makhoom Ali Khan, Khalid Jawed Khan and Dr Farogh Naseem appeared on behalf of private entities. Hafiz Ahsaan Ahmad Khokhar, Asma Hamid and Ashtar Ausaf Ali represented the Federal Board of Revenue (FBR) and other government officials.
A former lawyer, who represented the private clients in the case, said the petitions under Section 4(b) were weak as all three high courts had upheld the levy of supertax under Section 4(b).
To this extent, the FCC’s decision appears correct as the petitioners had a very weak case. However, in the cases under Section 4© for the 2022 tax year, all the high courts had ruled in favor of the taxpayers.
“I think the FCC’s decision on 4© is difficult to justify and appears unduly favorable to the FBR and the government. The function of the court is to interpret the law on established principles and not to act as the government’s relief wing, which appears to have happened here,” he said.
He said that because of the extent of the discrimination against 15 industries subject to a higher supertax rate, the FCC should have reversed the provision in the schedule.
Single and divisional chambers of three higher courts, comprising some of the best experts in tax matters, were unanimous in declaring this blatant discrimination ultra vires.
“The only relief the FCC has given is to extraction companies that had foreign arbitration clauses in agreements with the government that would have resulted in international awards against the government,” he said.
A former court officer said the ruling would erode taxpayers’ confidence in the justice system, which is already at its lowest level in many decades.
Another lawyer said the FBR would recover 200-300 billion. However, the economy as a whole will suffer as businesses begin to close their doors and move to other countries like Bangladesh, Sri Lanka and Indonesia.
“It makes no business sense to invest in Pakistan where not only is the cost of doing business higher but taxes are expropriating,” he added.
Hafiz Ahsaan Ahmad Khokhar defended the FCC order and said it would protect substantial revenues, clarify the limits of judicial review, strengthen parliamentary supremacy, uphold the doctrine of separation of powers, and establish a binding precedent for future tax litigation.
It should be noted that none of the three judges serving on the FCC had any training in tax matters, nor were they the author of a single published ruling on a significant tax issue.
