In a landmark ruling with major fiscal implications, the Federal Constitutional Court has upheld the controversial super tax, rejecting thousands of petitions filed by companies challenging its legality.
The Federal Constitutional Court announced its verdict on more than 2,000 petitions filed by various companies against the super tax. The court rejected objections on the merits of the case, effectively validating the tax framework introduced through amendments.
Sections 4B, 4C of Income Tax Ordinance upheld
The court upheld Sections 4B and 4C of the Income Tax Ordinance, which form the legal basis of the super tax. These provisions were originally added in 2015 and later amended in 2022.
The court partially quashed High Court decisions that had questioned the law’s validity, declaring those rulings incorrect to that extent.
Parliament has full authority
In its judgement, the court clarified that parliament has complete constitutional authority to impose tax on income. It ruled that the Super Tax Act 2022 cannot be declared discriminatory, dismissing claims raised by petitioners.
The detailed judgement will be issued later, the court said, while disposing of the case with certain conditions.
The court ruled that the super tax will not apply to Mudaraba, mutual funds, and beneficiary funds. It further clarified that separate legal concessions granted to different sectors will remain intact.
According to the judgement, entities eligible for concessions in the oil and gas sector can continue to avail them through the relevant tax commissioners.
Background: Super tax and stalled revenue
The super tax was imposed through amendments made in 2015 and 2022, with the 2022 law setting the threshold at incomes exceeding Rs300 million. Due to ongoing legal proceedings, more than Rs200 billion in tax revenue had remained withheld.
During hearings, reply-to-answer arguments were completed by companies’ counsel Makhdoom Ali Khan before the court reserved its decision.
As a result of the verdict, the federal government is expected to benefit by more than Rs300 billion. The decision is being seen as a major boost for revenue collection at a time of fiscal pressure.
With the constitutional challenge settled, the implementation of the super tax is expected to move forward without further legal hurdles.
