SC Scrutinizes Parliament’s Authority to Slap Super Tax Under Section 4C

The Supreme Court of Pakistan is currently deliberating on the constitutional limits of Parliament’s power to impose the “super tax” under Section 4C of the Income Tax Ordinance, 2001.

A five-judge Constitutional Bench (CB), headed by Justice Amin-ud-Din Khan, questioned whether the National Assembly has been granted specific constitutional authority to enact tax legislation that operates outside the conventional financial year.

What’s Section 4C & “Super Tax”

Section 4C was introduced via the Finance Act, 2022, extending the super tax on high-earning individuals, associations of persons, and companies.
The super tax rate under 4C is progressively applied. For example, banking companies are taxed at a higher rate (4%), and other sectors at a different (3%) rate for incomes above certain thresholds.
The proceeds are meant to fund welfare, displacement rehabilitation, and other public purposes.

Key Legal Questions Raised

Legislative Competence Outside the Financial Year
Justice Jamal Khan Mandokhail asked whether the Constitution explicitly allows Parliament to enact tax laws that impact past or closed financial periods.
Double Taxation & Equality (Article 25)
Petitioners argue that the tax under Section 4C violates equality before the law by discriminating among sectors, treating provident funds differently, and possibly subjecting income already taxed to a second charge.
Interpretation Versus Judicial Overreach
The FBR has defended 4C by stating that courts should only test whether a law violates fundamental rights or constitutional provisions; they should not rewrite or change tax policy, rates, or classifications. Petitioners counter that some high courts have modified the effect of Section 4C in their rulings, amounting to re-legislation by courts.

FBR’s Defence & Arguments

FBR’s senior counsel, Hafiz Ehsaan Ahmad Khokhar, insists that under Article 77 of the Constitution (dealing with legislative power over taxation) and Entry 47 of the Federal Legislative List (Fourth Schedule), Parliament has exclusive authority to tax income (excluding agricultural income).
The FBR argues that Sections 4B and 4C were enacted as Finance Acts and as Money Bills under Article 73(2)(a), thus satisfying constitutional requirements.
They contend that the super tax does not amount to double taxation because it is not a separate charge on the same income but an additional fiscal imposition, akin to a surcharge.

Precedents & High Court Judgments

Multiple High Courts (Islamabad, Lahore, and Sindh) have delivered varying judgments on Section 4C. Some have reduced rates, provided relief, or partially struck down the levy. Their decisions are now being appealed to the Supreme Court.
The Islamabad High Court had earlier declared the super tax under Section 4C ultra vires (i.e. beyond constitutional power) in certain respects.

Implications

Fiscal certainty is at stake: If the SC rules Section 4C unconstitutional, previous collections under this section may be subject to refund or adjustment.
Tax policy & legislative clarity: Parliament may need to amend laws, especially around retrospective charges, classifications, and exemptions.
Investor confidence: Business and industry sectors are watching closely, especially those in sectors highly affected (banks, cement, steel, etc.).
Social equity: Impact on the common man and workers’ benefits will remain under scrutiny.

Conclusion

The Supreme Court’s ongoing hearings on Section 4C’s super tax are not just about one provision of the tax law; they pose deeper questions about legislative competence, constitutional fairness, tax justice, and the boundary between tax policy and judicial review.