The Federal Constitutional Court (FCC) has upheld the constitutionality of the super tax introduced under Sections 4B and 4C of the Income Tax Ordinance, 2001, while excluding capital gains from the disposal of immovable property or securities held for a prescribed period.
In its judgment on a petition filed by DG Khan Cement Company Limited and others, the FCC has vindicated the position pursued by the Federation of Pakistan and the FBR. The ruling states super tax is additional tax on income, drawing its legislative sanction from entry 47, Part 1 of the Federal Legislative List of the Constitution.
“The necessary corollary to the above is that if a certain class of income is exempt from tax under the law regulating it i.e. the ordinance,” reads the judgement. “For instance, where no tax is payable on capital gains arising on disposal of immoveable property or securities either for being held beyond a certain period or is inherited or is otherwise exempted from the ordinance, no super tax shall be payable on such capital gains on disposal of immoveable property or securities.”
It said the same principle “shall apply” to any capital gains on disposal of agricultural property, which even otherwise cannot be subject to income arising therefrom either by usage or by disposal.
According to the ruling, the super tax levied under Section 4B (introduced by the Finance Act, 2015 for the rehabilitation of temporarily displaced persons from tax years 2015-2022) and Section 4C (introduced by the Finance Act, 2022 imposed on ‘High Earning Persons’ from tax year 2022 and onwards) is a valid exercise of Parliament’s taxation power under Entry 47 of the Federal Legislative List of the Constitution of Pakistan, being a tax on income.
In the case of section 4B, the court rejected the argument that the levy was a fee and not a tax, holding that the mere mention of a purpose did not automatically render the tax a fee in the absence of any direct service linkage to any beneficiary.
The court placed Section 4B within the domain of taxation, validly passed through the Finance Act, thereby upholding all the high courts’ judgements to this effect.
In respect of Section 4C Super Tax, the court further held that the provision is a self-contained provision with its own charge, assessment, and payment mechanism; there is no constitutional bar on so-called “double taxation.”
The court also reaffirmed the doctrine of judicial restraint in fiscal matters, holding the wisdom and policy of taxation lie with the legislature, and that judicial review is confined to questions of legislative competence, constitutional compliance, and absence of arbitrariness.