- The Court decides Super Skat additional income tax under item 47.
- The judgment says that the Federal Legislative List provides constitutionality.
- Superskat does not have to be paid, where capital gains are already tax-free.
ISLAMABAD: The Federal Constitutional Court of Pakistan (FCC) upheld the constitutionality of the super tax introduced under Sections 4B and 4C of the Income Tax Ordinance, 2001 and upheld the Federal Board of Revenue (FBR).
However, it excluded capital gains on the disposal of real estate or securities held for a fixed period, The news reported Thursday.
The FCC delivered its verdict in a case filed by DG Khan Cement Company Limited and others. This judgment confirms the position pursued by the Federation of Pakistan and the FBR.
The FCC ruled that the super tax is an additional tax on income and draws its legislative sanction from entry 47, part 1 of the Federal Legislative List of the Constitution.
“The necessary corollary of the above is that if a particular class of income is exempt from tax under the law governing it, i.e. the Ordinance,” the judgment read, adding: “For example, where no tax is payable on capital gains arising from the disposal of immovable property or securities, either to be held beyond a certain period or inherited or otherwise exempt from tax on the capital gain, disposal of immovable property or securities”.
The FCC held that the same principle “shall apply” to any capital gain on the disposition of agricultural property, which itself may not otherwise be subject to income derived therefrom, either by use or by disposition.
Top official sources in the FBR said that the tax machinery has so far collected Rs290 billion on account of Super Tax in the first nine months of the current financial year and it may go up to Rs315 billion by the end of June 2026.
In the extensive and detailed judgment, almost 300 pages long, 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 to rehabilitate temporarily displaced persons from the tax years 2015-2022)) and section 4C (introduced by the Finance Act, 2022 imposed on ‘highly salaried persons’ from 2022 is valid from one and tax year 2022) of Parliament power of taxation under entry 47 of the Federal Legislative List of the Constitution of Pakistan, being a tax on income.
In the case of § 4B, the court rejected the argument that the charge was a fee and not a tax, holding that the mere mention of a purpose did not automatically make the charge a charge in the absence of any direct service connection to a beneficiary.
The court placed § 4B entirely within the area of taxation, validly adopted through the Finance Act, and thus upheld all the judgments of the high courts in this regard.
With regard to Section 4C Super Tax, the court further determined that the provision is an independent provision with its own tax, assessment and payment mechanism; there is no constitutional impediment to so-called “double taxation”.
Significantly, the Court affirmed the doctrine of judicial restraint in tax matters, holding that the wisdom and policy of taxation rest with the legislature and that judicial review is limited to questions of legislative competence, constitutional compliance, and absence of arbitrariness.
In another significant finding on the jurisdictional side, the court held that the FBR and the Commissioner Inland Revenue (if duly authorised) had powers to institute and defend proceedings relating to tax matters arising out of constitutional challenges.
