The Federal Constitutional Court (FCC) on Tuesday dismissed all petitions challenging the super tax and upheld Section 4B of the Income Tax Ordinance, 2001, paving the way for the federal government to collect more than Rs. 300 billion in revenue, a decision seen as a major setback for the business community.
The court ruled that the petitions lacked merit and affirmed that Parliament is fully empowered to impose levy taxes through legislation. It also set aside earlier High Court rulings that had found the super tax regime discriminatory and declared Sections 4B and 4C lawful and valid.
Under the judgment, the super tax will not apply to Mudarabas, mutual funds, and benevolent funds. The court further directed entities in the oil and gas sector to individually approach the relevant tax commissioner for any concessions.
Counsel for the Revenue Division said the decision would yield approximately Rs. 310 billion for the federal government, adding that the court has acknowledged the Parliament’s legislative authority.
Chief Justice Aminuddin Khan announced the reserved verdict. A three-member bench headed by the chief justice heard the case, while senior counsel Makhdoom Ali Khan presented arguments on behalf of various companies.
The super tax was first introduced in 2015 as a special levy aimed at rehabilitating people affected by terrorism in Khyber Pakhtunkhwa. Under the original framework, individuals and companies earning more than Rs. 300 million in annual profits were subjected to an additional 5 percent tax.
In 2022, the government expanded the scope of the levy by lowering the profit threshold to Rs. 150 million and increasing the rate to a maximum of 10 percent.
Following the expansion, business leaders, banks, and corporate entities challenged the tax in various high courts, arguing that the 2022 amendment amounted to retrospective taxation and resulted in double taxation.
However, all high courts upheld the levy, ruling that the super tax was lawful and within the government’s taxing powers.
The case has had a lengthy judicial journey. It first reached the Supreme Court in 2019 and was heard extensively during the tenure of former Chief Justice Umar Ata Bandial. Following the 26th Constitutional Amendment, the matter was transferred to a constitutional bench, and later, after the 27th Amendment, jurisdiction moved to the newly formed Federal Constitutional Court.
In total, the Federal Constitutional Court conducted 17 hearings before issuing its short order today on Tuesday.