The Federal Constitutional Court (FCC) has upheld the legality of the super tax, ruling that Sections 4B and 4C of the Income Tax Ordinance (ITO) 2001 are constitutional and do not violate fundamental rights.
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In a detailed judgement pronounced on January 27 and uploaded on Wednesday, the court dismissed a batch of appeals, petitions and transfer cases challenging the levy. It held that Section 4B does not create any unreasonable or hostile discrimination, as the classification is income-based, founded on intelligible criteria and bears a rational link to the objectives of the law.
The verdict was delivered by a three-member bench comprising FCC Chief Justice Aminuddin Khan, Justice Syed Hasan Azhar Rizvi and Justice Syed Arshad Hussain Shah.
The court observed that parliament has full authority under Article 73(2)(a) of the Constitution to impose, amend or abolish taxes through a Finance Act as part of a Money Bill. It further noted that any perceived hardship arising from the operation of fiscal laws falls within the legislative domain and does not, by itself, justify judicial intervention.
Declaring Section 4B to be intra vires the Constitution, the FCC ruled that it validly applies from tax year 2015 onwards at the prescribed rates. The court also affirmed the constitutionality of Section 4C, introduced through the Finance Act 2022, holding that it applies from tax year 2022 onwards.
The judgement clarified that parliament may enact laws with retrospective or prospective effect, provided “past and closed transactions” are not disturbed. In this context, the FCC set aside rulings of the Sindh, Islamabad and Lahore High Courts to the extent they barred retrospective application of Section 4C for tax year 2022, noting that returns for that year had not yet been filed at the relevant time.
The court also overturned parts of the Islamabad High Court’s Pakistan Oilfields judgement of March 15, 2024, including its direction to the Federal Board of Revenue (FBR) to issue a nationwide circular. The FCC ruled that super tax under Section 4C is a standalone levy on income, separate from regular income tax, and applies to capital gains as well.
However, the bench held that for exploration and production companies, Sections 4B and 4C would apply only to the extent that they do not exceed aggregate tax limits set under the Fifth Schedule and petroleum concession agreements. It also ruled that exemptions for benevolent and provident funds would remain intact, while banking companies will be subject to Section 4C from tax year 2023 onwards at amended rates introduced through the Finance Act 2023.
Section 4B, introduced in 2015, initially imposed super tax on individuals earning more than Rs500 million to support rehabilitation of internally displaced persons. Section 4C, added in 2022, extended the levy to persons earning more than Rs150 million.
