Supra-tax!

The Federal Constitutional Court’s verdict on super tax has come to uphold the jurisdiction of the parliament to impose taxation. The court has retained the tax as well as certain provisions of the Income Tax Ordinance of 2001 to take effect from the dates on which they were levied at the prescribed rates. The court, in other words, has summarily rejected the pleas from a host of businesspersons, banks and companies that had challenged the super tax, arguing that its retrospective application amounted to double taxation. This FCC verdict has come to settle more than 2,200 cases pertaining to Rs310 billion in federal revenues.

The judgment, for many, is tantamount to subscribing to the ‘law of necessity’, wherein the court sided with the system of revenue generation, with little or no consideration to the rationality and its implication on the economy. The court, by accepting all the contentions of FBR counsels, has left the already tax-burdened community high and dry. The only exception is the petroleum sector that has been granted some relief over concession agreements, and specific exclusions for Benevolent/ Provident Funds, subject to clearance from concerned revenue commissioners.

While the dictum has empowered the parliament to levy taxes, denying the bureaucracy the role to act as an arbitrator and adjudicator, it is believed that it will result in supra-inflation and a slump in production. It also ruled that equity, fairness or rationality of tax do not provide grounds for judicial interference and, likewise, courts cannot re-determine tax slabs, rates, thresholds or fiscal policy.

The super tax was slapped in 2015 on wealthy individuals, associations of persons and companies earning above Rs500 million, and the same was later extended to earnings in excess of Rs150 million annually. That prescription had resulted in reduced corporate profitability, slump in investment and increased inflationary pressures, hindering growth and confidence of big-ticket businesses. The court’s decision to retain the tax will result in more autocratic executive deeds, further squeezing the same group of taxpayers, and encouraging the fragmentation of businesses to avoid higher tax brackets.