The Federal Constitutional Court (FCC) of Pakistan has ruled the super tax, introduced under Sections 4B and 4C of the Income Tax Ordinance, 2001, as constitutionally valid, supporting the Federal Board of Revenue’s (FBR) stance. However, the court excluded capital gains from the sale of immovable property or securities held beyond a specified period from this tax.
This landmark judgement came in response to a petition filed by DG Khan Cement Company Limited and others, ultimately affirming the position taken by the Federation of Pakistan and the FBR. The court clarified that the super tax constitutes an additional levy on income, deriving its authority from entry 47, Part 1 of the Federal Legislative List of the Constitution.
Notably, the judgement emphasized that if certain income categories are exempt from tax under the governing ordinance—such as capital gains from immovable property or securities held for a prescribed duration or inherited—then such gains are also exempt from the super tax. The same exemption principle applies to capital gains from agricultural property, which traditionally is not subject to income tax either through use or disposal.
Meanwhile, senior FBR officials revealed that the tax authority has collected Rs290 billion from the super tax during the first nine months of the current fiscal year, with projections suggesting this amount could rise to Rs315 billion by June 2026.
The court’s detailed judgement, spanning nearly 300 pages, extensively analyzed numerous complex taxation issues. It confirmed the super tax under Section 4B, established by the Finance Act of 2015 for funds aimed at rehabilitating temporarily displaced persons from 2015 to 2022, and Section 4C, introduced by the Finance Act of 2022 targeting high earners from 2022 onward, as a legitimate exercise of Parliament’s taxing authority under Entry 47 of the Federal Legislative List.
In a significant legal interpretation, the court dismissed claims that Section 4B represented a fee rather than a tax, ruling that citing a purpose does not convert a tax into a fee without a direct service link to beneficiaries. It thus upheld earlier high court decisions affirming Section 4B’s validity as a tax measure.
Regarding Section 4C, the court noted it is a self-contained provision with independent mechanisms for charge, assessment, and payment, rejecting arguments against so-called “double taxation” on constitutional grounds.
Importantly, the judgement reinforced the doctrine of judicial restraint in fiscal matters, asserting that decisions on taxation policy rest with the legislature. Judicial review is confined to assessing legislative competence, constitutional adherence, and the absence of arbitrariness.
In another key finding, the court confirmed that the FBR and the Commissioner Inland Revenue, when properly authorized, possess the legal authority to initiate and defend legal proceedings concerning tax matters, including constitutional challenges.
