Federal Constitutional Court upholds super tax, restores levy from 2015

ISLAMABAD: In a landmark ruling, the Federal Constitutional Court on Tuesday upheld the super tax, restoring Section 4-B of the Income Tax Ordinance and affirming parliament’s authority to legislate on the imposition of taxes.

The verdict was announced in the long-running super tax case by a three-member bench headed by Chief Justice Aminuddin Khan. The court rejected objections regarding the maintainability of the petitions and ruled that Section 4-B of the Income Tax Ordinance would remain in force with effect from 2015.

According to the judgement, parliament is fully empowered to impose a levy through legislation. “The objections raised on the maintainability of the case are rejected,” the court ruled, adding that the decisions of the high courts declaring the super tax discriminatory were incorrect.

The court observed that Sections 4-B and 4-C relating to the imposition of super tax were in accordance with the law. However, it clarified that the super tax would not apply to modarabas, mutual funds and benevolent funds.

In its order, the court said that oil and gas companies could seek individual relief by approaching the relevant tax commissioner.

Speaking to the media after the verdict, Revenue Division lawyer Hafiz Ehsan Khokhar said the decision would provide significant financial benefit to the federal government.

“The federal government will receive around Rs310 billion as a result of this judgement,” he said, adding that the court had recognised parliament’s legislative authority and held that high courts had exceeded their jurisdiction in earlier rulings.

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What is super tax?
The super tax was introduced in 2015 to support the rehabilitation of people affected by terrorism in Khyber Pakhtunkhwa. Initially, a 5% additional tax was imposed on entities earning annual profits above Rs300 million, a move upheld by all high courts at the time.

In 2022, the scope of the tax was expanded to profits exceeding Rs150 million, with the rate increased to a maximum of 10 per cent. The expansion was challenged by business groups, banks and companies on grounds of retrospective application and double taxation.

The case has remained under litigation since 2019, with proceedings held in the Supreme Court, later before a constitutional bench following the 26th Constitutional Amendment, and subsequently transferred to the Federal Constitutional Court after the 27th Amendment.

The Federal Constitutional Court conducted 17 hearings before issuing its final verdict.