Super tax declared constitutional by top court, relief granted on capital gains

ISLAMABAD: The Federal Constitutional Court of Pakistan has upheld the constitutionality of the super tax imposed under Sections 4B and 4C of the Income Tax Ordinance, 2001, in a major decision favouring the Federal Board of Revenue (FBR).

The ruling came in a case filed by DG Khan Cement Company Limited and others, with the court declaring that the super tax qualifies as an additional tax on income under the Constitution’s Federal Legislative List.

However, the court provided partial relief by excluding capital gains from the disposal of immovable property or securities held for a specified period from the scope of the super tax. It clarified that where such gains are already exempt under existing tax laws, no super tax would apply.

The judgement further extended this principle to agricultural property, stating that capital gains from such assets cannot be subjected to income tax or super tax.

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In its detailed verdict, spanning nearly 300 pages, the court rejected arguments that the levy under Section 4B was a fee rather than a tax, noting that the absence of a direct service linkage confirmed its nature as a tax measure.

Regarding Section 4C, the court held that it is a self-contained provision with its own mechanism for charge, assessment, and payment, and ruled that there is no constitutional prohibition on what critics described as “double taxation.”

The bench also reaffirmed the principle of judicial restraint in fiscal matters, emphasising that taxation policy falls within the domain of the legislature and that courts would only intervene in cases involving constitutional violations or arbitrariness.

On the administrative side, the court confirmed that the FBR and authorised tax officials have the legal authority to initiate and defend proceedings in tax-related constitutional challenges.

According to officials, the FBR has already collected Rs290 billion under the super tax in the first nine months of the current fiscal year, with the total expected to reach Rs315 billion by June 2026.