Super Tax Revenue Disparity Raises Concerns in Pakistani Court
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A significant gap between funds collected and spent on displaced persons is under scrutiny by Pakistan’s Federal Constitutional Court, sparking debate over the efficacy and purpose of a key revenue stream.
ISLAMABAD – A three-judge bench of the Federal constitutional Court (FCC) expressed concern on Tuesday regarding the allocation of funds generated through a “super tax” levied between 2015 and 2020. While approximately Rs144 billion was collected, only Rs37 billion was ultimately used for the rehabilitation of internally displaced persons (IDPs), a disparity one justice characterized as undermining the tax’s intended purpose. The court is currently hearing appeals challenging the legality of the super tax, as outlined in Section 4B of the income Tax Ordinance (ITO).
Super Tax Collection and provincial Disbursement
The Additional Attorney General (AAG), Chaudhry Aamir Rehman, addressed the court, stating that 50% of the super tax revenue had been distributed to the provinces. He further asserted that the overall collection demonstrated the government’s commitment to its financial objectives. This statement came in response to concerns raised about the slow pace of spending on IDP rehabilitation.
Legal Challenges to the Super Tax
The current legal proceedings stem from appeals against rulings made by the Sindh, lahore, and Islamabad High Courts concerning the super tax. The core of the debate centers on whether the tax, initially imposed as a temporary measure to address the fallout from the Zarb-i-Azb operation against terrorism, falls within the legislative competence of the federal government or the provinces.
The super tax, introduced by the PML-N government, applies to high-income earners – individuals, associations, and companies with annual revenues exceeding Rs500 million. It levies a 4% tax on banking companies and 3% on other sectors, specifically earmarked for IDP rehabilitation.
The AAG emphasized that the fundamental aim of taxation is social welfare,citing the Benazir Income Support Program (BISP) as a prime example of the federal government’s commitment to public welfare initiatives,with an annual expenditure of around Rs400 billion.
However, opposing counsel argued that, given its specific purpose, the super tax falls under the purview of social welfare, a legislative area now primarily governed by the provinces following the abolition of the Concurrent legislative List.
A key point of contention raised by senior counsel Makhdoom Ali Khan centered on the authority of the Inland Revenue Commissioner to bring the case before the FCC. “When the federal government and also the Federal Board of Revenue (FBR) were not aggrieved by the judgements of the high courts, how could the Commissioner of Inland Revenue name both as respondents in the case?” he questioned. He further argued that the commissioner’s attempt to sue the federal government, despite not being an appellant, was akin to “the tail wagging the dog.”
Legislative Intent and Parliamentary Supremacy
Advocate Hafiz Ehsaan Ahmad khokhar, representing the FBR, countered these arguments, asserting that taxation is a matter of legislative policy and should be subject to judicial restraint. He urged the court to uphold the validity of Section 4C of the ITO, emphasizing its constitutional basis and consistency with international fiscal practices.He also requested the overturning of the high courts’ judgements, which he claimed attempted to overstep the bounds of parliamentary authority.
Drawing on the precedent set in the 1991 Sohail Jute Ltd case, the AAG argued that the substance of a levy, rather than its name, should determine its legality. He contended that even if labeled differently, a levy remains a customs duty if it functions as such.
The court’s decision will have significant implications for the future of the super tax and the allocation of resources for IDP rehabilitation, potentially reshaping the balance of fiscal power between the federal government and the provinces.
