The Federal Constitutional Court on Tuesday upheld the validity of the controversial “super tax” imposed under the Income Tax Ordinance, 2001, with the ruling expected to generate around Rs. 300 billion in additional revenue for the national exchequer, according to the Federal Board of Revenue (FBR).
In its short order, the court dismissed appeals of taxpayers challenging Section 4B of the ordinance and declared it constitutionally valid as a tax. The court also allowed appeals filed by the Commissioners Inland Revenue, the Federal Board of Revenue and the federal government in cases relating to Section 4C, ruling that the super tax was valid as enacted and could be applied retroactively for tax year 2022.
According to the ruling, Section 4C super tax will apply at a rate of 10% for tax year 2022 on 15 specified sectors whose income exceeded Rs. 300 million, as identified in the First Proviso to Division IIB of the ordinance. The court directed tax commissioners to issue fresh notices in cases involving oil exploration and petroleum companies operating under petroleum and concession agreements governed by the Fifth Schedule of the Income Tax Ordinance, 2001. It said the super tax should be applied in accordance with the law and the specific terms of each agreement, ensuring that agreed caps under those contracts are not breached.
The court further held that the Section 4C super tax will be applicable to banking companies from tax year 2023 onward.
The decision removes a major legal hurdle to the enforcement of the super tax, which was introduced as a one-time levy on high-earning sectors to shore up public finances amid fiscal pressures.