ISLAMABAD: The Federal Constitutional Court (FCC) has upheld the constitutional validity of the super tax imposed under Sections 4B and 4C of the Income Tax Ordinance, 2001, in a ruling that supports the Federal Board of Revenue’s position.
The judgement was issued in a case brought by DG Khan Cement Company Limited and others. According to the report, the ruling endorses the stance taken by the Federation of Pakistan and the FBR.
At the same time, the court held that capital gains arising from the disposal of immovable property or securities held for a prescribed period would not fall within the scope of the super tax.
The judgement also said the same principle would apply to capital gains from the disposal of agricultural property, which it noted cannot otherwise be subjected to income tax arising from its use or disposal.
Key findings of the judgement
In its nearly 300-page ruling, the FCC examined a range of taxation questions and concluded that the super tax is an additional tax on income, deriving legislative authority from Entry 47, Part I 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,” the judgement read, and added: “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.”
The court said Section 4B, introduced through the Finance Act, 2015 for the rehabilitation of temporarily displaced persons from tax years 2015-2022, and Section 4C, introduced through the Finance Act, 2022 for high earning persons from tax year 2022 onward, were both valid exercises of parliament’s taxation powers under the Constitution.
Regarding Section 4B, the FCC rejected the contention that the levy was a fee rather than a tax. It held that merely stating a purpose for the levy did not convert it into a fee where there was no direct link between a service and a beneficiary. The court therefore treated Section 4B as a taxation measure validly enacted through the Finance Act and upheld the high courts’ rulings on the matter.
On Section 4C, the court held that the provision operates independently, with its own framework for charge, assessment and payment. It further ruled that there is no constitutional prohibition on what is described as double taxation.
Judicial restraint and FBR powers
The FCC also reaffirmed judicial restraint in fiscal matters, holding that decisions on the wisdom and policy of taxation rest with the legislature, while judicial review is limited to legislative competence, constitutional compliance and the absence of arbitrariness.
In another finding, the court held that the FBR and the Commissioner Inland Revenue, where properly authorised, have the power to initiate and defend proceedings in tax matters arising from constitutional challenges.
According to top FBR officials, the tax machinery has so far collected Rs290 billion under the super tax during the first nine months of the current fiscal year. The same officials said the figure could rise to Rs315 billion by the end of June 2026.
