ISLAMABAD: The Federal Board of Revenue has told the Federal Constitutional Court that the legislature holds the sovereign authority to impose taxes with retrospective effect at any point during a financial year, provided the law is enacted by a competent legislature and does not violate constitutional limitations.
Presenting arguments before a three-judge bench of the Federal Constitutional Court, FBR counsel Asma Hamid stated that Parliament is empowered to levy taxes either prospectively or retrospectively, unless the Constitution itself expressly restricts such authority. She argued that once a tax is validly enacted, it may lawfully affect past transactions, regardless of whether it is introduced through the Finance Act on July 1 or at any other time during the fiscal year.
The bench, headed by Justice Amin-ud-Din Khan and comprising Justice Syed Hasan Azhar Rizvi and Justice Arshad Hussain, was hearing appeals filed by the FBR against judgments of the Sindh, Lahore, and Islamabad High Courts concerning the levy of Super Tax under Section 4C of the Income Tax Ordinance, 2001. The provision was introduced through the Finance Act, 2015, and has been the subject of extensive litigation.
Asma Hamid contended that once Parliament’s competence to legislate is established, the manner or form in which legislative power is exercised falls outside the scope of judicial review. She maintained that the legislature retains the authority to amend, repeal, or withdraw statutory rights or privileges, including tax exemptions.
She further argued that the constitutionality of a tax must be tested against three established standards: whether it is enacted by a competent legislature, whether it is confiscatory in nature, and whether it is discriminatory. Fairness, she submitted, cannot stand alone as a constitutional benchmark, as it is inherently subjective. However, fairness as embedded within tests of arbitrariness, equality, and confiscation is consistent with constitutional principles.
Referring to judicial practice in Pakistan and India, she noted that courts generally adopt a deferential approach in fiscal matters, upholding most tax laws and striking down only those that are manifestly confiscatory, discriminatory, or irrational. She asserted that the language of Section 4C is clear and unambiguous, leaving no doubt that it applies from tax year 2022 onwards.
The FBR counsel explained that banking companies were expressly excluded from the application of Section 4C for tax year 2022. However, the Second Proviso to Division IIB of the Ordinance explicitly applied the provision to banks from tax year 2023 at the rate of 10 percent, providing ample notice. She argued that reliance by banks on claims of retrospectivity for tax year 2023 was misplaced and that relief granted by the High Courts on this basis was legally unsustainable.
Addressing the applicability of Super Tax to petroleum and exploration companies, Asma Hamid submitted that Rule 4AB of the Fifth Schedule clearly brings such entities within the ambit of Section 4C. She argued that protections under petroleum concession agreements and related laws do not override the Income Tax Ordinance, citing Islamabad High Court judgments from 2018 and 2019 that affirmed the supremacy of the tax law.
Another FBR lawyer, Hafiz Ehsaan Ahmad Khokhar, described Super Tax as a levy targeting high-income individuals and large corporate entities to promote distributive equity and mobilize fiscal resources in the national interest. He emphasized that Section 4C, enacted as a Money Bill under Article 73 of the Constitution, carries a strong presumption of constitutionality and does not amount to double taxation, as it is a separate charging provision.
Khokhar further argued that the High Courts exceeded their jurisdiction by applying the doctrine of reading down to effectively rewrite the law and treat the levy as retrospective. He stated that tax liability crystallizes only upon the filing of returns and that Parliament is fully competent to prescribe rates for an open tax year.
After completion of arguments by the FBR, senior counsel Makhdoom Ali Khan, representing the taxpayers, resumed submissions and questioned the maintainability of the appeals, noting that they were filed by the Commissioner Inland Revenue rather than the federation. The court adjourned the hearing until Wednesday, January 7.
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