Super Tax Will Not Apply Retrospectively: IHC

The Islamabad High Court (IHC) has declared Super Tax on high-income earners under section 4C of the Income Tax Ordinance 2001 as ultra vires to the Constitution. According to the judgment of the IHC issued on Thursday, the petitioners in the writ petitions are aggrieved by the levy of “super tax‟ imposed under section 4C of the Income Tax Ordinance 2001 (the Ordinance), and some of them have also received and impugned notices from the Commissioner demanding super tax. The IHC ordered that the section 4C, as it stands now, falls to be ultra vires the fundamental rights under Articles 18, 23 and 24, read with Article 4 of the Constitution. The section 4C, as read down, will have prospective application only, and will not apply to any transactions or events past and closed on or before June 30, 2022. The section 4C is to be read down in calculating the income taxable to super tax so as to: (i) exclude all classes of income enumerated therein the tax on which is final under the other provisions of the Ordinance; and (ii) sever the exclusions of brought forward depreciation, brought forward business losses, and brought forward amortization allowances available to the taxpayers under the other extant provisions of the Ordinance. The IHC further declared that the section 4C will not apply to the benevolent funds holding exemptions from tax under the other provisions of the Ordinance. Moreover, the section 4C, as read down, will not apply to petroleum and exploration companies to the extent its application results in the taxation of such companies exceeding the thresholds stipulated in Rule 4 of the Fifth Schedule to the Ordinance. All notices of demand or recovery impugned in the petitions are set aside, without prejudice to the revenue’s right to issue fresh notices not inconsistent with this judgment.