Federal Constitutional Court upholds super tax

ISLAMABAD: Accepting the authority of Parliament to legislate on imposing taxes, the Federal Constitution Court (FCC) on Tuesday — in a landmark ruling with far-reaching constitutional and fiscal implications — upheld the vires of the super tax.

This means that means Section 4-B and the 4-C of the Income Tax Ordinance (ITO), 2001 will be applicable from the dates these were levied as per the prescribed rates.

A three-member bench, headed by FCC Chief Justice Aminuddin Khan and also including Justice Syed Hasan Azhar Rizvi and Justice Syed Arshad Hussain Shah, announced the much-anticipated short order.

The short order was announced in the afternoon after a brief hearing in the morning, when the FCC reserved its ruling with an observation that the verdict would be issued today. The detailed judgment will follow later.

Senior counsel Hafiz Ahsaan Ahmad Khokhar, who was representing the Revenue Division secretary, said the FCC decided over 2,200 long-pending tax cases concerning Sections 4-B and 4-C of the ITO, thus safeguarding an estimated Rs310 billion in public revenue.

The FCC had taken up 225 connected matters, including 71 intra-court appeals (ICAs) that were transferred to it after the passage of the 27th Constitutional Amendment.

The tax was initially imposed by the PML-N government in 2015 as a one-time measure under a money bill, with the stated purpose of rehabilitating areas affected during Operation Zarb-i-Azb against terrorists.

It applies to wealthy individuals, associations of persons and companies earning above Rs500 million. It levies a tax rate of 4 per cent on the income of banking companies and 3pc on other sectors, aimed at funding the rehabilitation of “temporarily displaced persons” as per Section 4-B of ITO.

Subsequently, different appeals were instituted against the judgments of the Sindh, Lahore and Islamabad high courts regarding the levy of super tax through Section 4-B.

On Tuesday, the FCC rejected earlier high court rulings that had declared the super tax “discriminatory” and declared that the levy was validly imposed.

It also observed that Sections 4-B (super tax for rehabilitation of temporarily displaced persons) and 4-C (super tax on high-earning persons) of the ITO were in accordance with the law.

However, the FCC allowed oil and gas exploration companies to approach the relevant tax commissioner individually for tax exemptions, also explaining that it will not apply to mudarabah, mutual funds, or unit trust funds.

Senior counsel Hafiz Ahsaan Ahmed Khokhar, who represented the Revenue Division secretary before the FCC, told Dawn after the hearing that the judgment would affect the recovery of around Rs310 billion.

Previously, an additional 5pc super tax was levied on annual profits exceeding Rs300m. But in 2022, the super tax was applied to individuals earning over Rs150m annually, with a maximum rate of 10pc.

Prior to the FCC’s formation in November 2025, a five-judge constitutional bench of the Supreme Court was hearing the case.