ISLAMABAD: In a significant development, the Federal Tax Ombudsman (FTO) has directed the Federal Board of Revenue (FBR) to halt recovery of Super Tax through “coercive measures,” including actions involving capital gains from inherited properties.
The FTO has instructed the FBR to issue a clear policy and legal clarification on the applicability of Section 4C (Super Tax) of the Income Tax Ordinance, 2001, particularly covering all income segments such as capital gains arising from inherited assets.
According to the order, the FBR must suspend all recovery actions undertaken through coercive means until it fulfills its legal obligation under Section 4C(6), which requires the Board to frame rules via official notification to implement the provision.
The directive comes amid concerns that tax authorities initiated recovery proceedings without waiting for a detailed judgment from the Supreme Court of Pakistan regarding the scope and applicability of Section 4C. The FTO noted that such premature enforcement actions amount to maladministration, as key legal parameters remain unsettled.
The case originated from a complaint against the Regional Tax Office Rawalpindi, where recovery proceedings were launched over alleged Super Tax liabilities tied to capital gains on inherited property. The complainant argued that such gains are either exempt or fall under zero-rated treatment under existing tax laws.
The FTO observed that the absence of clear guidelines or policy from the FBR has led to inconsistent and potentially discriminatory enforcement. It emphasized that initiating recovery before issuing proper rules and awaiting judicial clarity is “arbitrary, excessive, and contrary to principles of fairness and good governance.”
While Section 4C imposes Super Tax on high-income individuals across various income streams—including profit on debt, dividends, capital gains, brokerage, and commissions—the FTO highlighted that no comprehensive framework or clarification has yet been issued by the FBR to define its scope across different segments.
Reaffirming its stance, the FTO stated that immediate and indiscriminate recovery efforts following a short court order are unjustified, particularly when Section 4C(6) explicitly mandates rule-making before enforcement.
The ombudsman concluded that the FBR’s failure to provide clarity and adhere to due process reflects administrative lapses amounting to maladministration.
