SHC invalidates backdated super tax

KARACHI: The Sindh High Court (SHC) on Thursday invalidated a super tax that was applied retrospectively for the previous fiscal year, but said that the special levy would come into force from the next tax year.

However, the court suspended its judgement for 60 days.

A two-judge bench, headed by Justice Mohammad Junaid Ghaffar, announced the verdict on petitions that challenged the constitutionality of Section 4C of the Income Tax Ordinance 2001, claiming that the said law was discriminatory and amounted to double taxation.

The court found that “the first proviso to Division IIB of Part I of the First Schedule to the Income Tax Ordinance 2001” was discriminatory, hence ultra vires to the Constitution, meaning it exceeded its scope and went beyond its authority.

Says special levy will apply from coming tax year

“The operation of this judgement shall remain suspended for a period of 60 days from the date hereof; hence, the securities furnished pursuant to respective ad interim orders shall remain intact for the said period,” it said.

Section 4C — titled ‘Super tax on high earning persons’ — of the Income Tax Ordinance says that a “super tax shall be imposed for the tax year 2022 and onwards at the rates specified in Division IIB of Part I of the First Schedule, on the income of every person”.

Brokerage house AKD Securities said in a brief note that the SHC decision was “positive for companies”, but it was “unlikely to bode well from a broader economic context given difficult ongoing negotiations with the IMF”.

Similarly, Arif Habib Ltd noted that the suspension of the judgement for 60 days “implies that companies may not undertake any reversal in the same period,” and the government could file an appeal in the Supreme Court.

It also noted that the judgement would only apply to Sindh-based registered companies and would not have any impact on super tax booked by banks.