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Wednesday, February 28, 2024  
17 Shaban 1445  

Islamabad High Court strikes down super-tax

All notices of demand and recovery have been declared illegal
File photo.
File photo.

The Islamabad High Court struck down a super-tax on high-income businesses on Thursday.

Section 4C of the Income Tax Ordinance falls to be ultra vires (beyond legal power of authority) the fundamental rights under Articles 18 (freedom of trade, business or profession), 23 (provision as to property) and 24 (protection of property rights), read with Article 4 (right of individuals to be dealt with in accordance with law, etc) of the Constitution, said the 42-page court order.

Section 4C — titled ‘Super tax on high earning persons’ — of the Income Tax Ordinance says that a “super tax shall be imposed for the tax year 2022 and onwards at the rates specified in Division IIB of Part I of the First Schedule, on the income of every person”.

The order, authored by Justice Sardar Ejaz Ishaq Khan, used Imrana Tiwana phraseology that the Section 4C was “held to be against the scheme of the Constitution and should either be read down or declared ultra vires for the reasons given” in the judgment.

The court said that all notices of the demand and recovery of the proposed super-tax stood null and void. The court also struck down section 4-c of the income tax ordinance.

The petitioners were represented by Salman Akram Raja, Adnan Haider Randhawa and others.

With the preference to save rather than destroy, the said section was to be read down in calculating the income taxable to super tax so as to:

  • (a) exclude all classes of income enumerated therein the tax on which is final under the other provisions of the Ordinance; and

  • (b) sever the exclusions of brought forward depreciation, brought forward business losses, and brought forward amortization allowances available to the taxpayers under the other extant provisions of the Ordinance;

Moreover, it would have “prospective application only, and will not apply” to any transactions or events past and closed on or before June 30, 2022.

Section 4C “will not apply to the benevolent funds holding exemptions from tax under the other provisions of the Ordinance”, it said.

“Section 4C, as read down, will not apply to petroleum and exploration companies to the extent its application results in the taxation of such companies exceeding the thresholds stipulated in Rule 4 of the Fifth Schedule to the Ordinance; and

All notices of demand or recovery impugned in the petitions are set aside, without prejudice to the revenue’s right to issue fresh notices not inconsistent with this judgment,“ it said.

The order also stated the FBR replies to various petitions that conceded that the rather extraordinary taxation measures were adopted at the instance of the IMF and that “Pakistan is in the IMF’s Extended Fund Facility Program and the 7th review was in progress … in order to provide fiscal space to the government this year the FBR has agreed to collect PKR 7.470 billion which is PKR 2.15 billion more than the IMF’s own estimate”.

But it was the “inexorable consequence” of the successive governments’ “profligacy and inept management” of public finances.

Finance Minister Ishaq Dar announced the tax in his budget speech last month. The super tax will apply to people earning Rs500 million annually or more. In the original budget proposal, it was levied on people earning Rs300 million per annum but conditions were later relaxed.

The Supreme Court had okayed the super-tax set at 4% for all industries in February. The government had originally levied it at 10% for some industries and at 4% for others.

The Lahore High Court had also approved the tax but had added that the rules did not allow a tax higher than 4%.

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Ishaq Dar


Islamabad High Court


super tax

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