The Federal Constitutional Court (FCC) on Thursday affirmed the legality of the contentious “super tax,” reversing a prior ruling by the Islamabad High Court that had invalidated its enforcement. This decision was delivered in a comprehensive 293-page judgment authored by Chief Justice Aminuddin Khan.
The court declared that the super tax, imposed under Section 4C of the Income Tax Ordinance 2001, is constitutional and enforceable. It emphasized that this levy constitutes a distinct tax regime separate from the standard income tax system and applies to tax years beginning in 2022.
In a significant development, the FCC set aside the Islamabad High Court’s verdict against Section 4C, affirming that the parliament holds full authority to impose taxes on income under the ordinance. The court also ruled that the high court had overstepped its jurisdiction by instructing the Federal Board of Revenue (FBR) to issue circulars related to the tax.
The judgment clarified that the super tax is an additional charge on top of regular income tax rather than a replacement. It applies to incomes subject to a separate tax framework, including capital gains. Furthermore, the court specified that the tax would be applicable to the petroleum and exploration sectors, within the boundaries of existing laws and contractual agreements.
Regarding exemptions, the court mandated that welfare and pension funds must obtain certification to qualify for relief. It also upheld the legality of retrospective taxation through legislation. The ruling noted that imposing higher tax rates on particular sectors does not amount to discrimination but falls within the legislature’s prerogative.
Notably, the court confirmed that any income exempt under the law remains exempt from the super tax. This includes gains from property or share sales where exemptions are applicable. Additionally, income derived from inheritance, agricultural land transactions, and income realized after specified holding periods will also be exempt from this levy.
