ISLAMABAD: Pakistan’s Federal Constitutional Court has upheld the constitutionality of the country’s controversial “super tax,” delivering a landmark ruling that settles years of litigation and provides long-awaited clarity for businesses and investors.
In a detailed judgment made public on Wednesday, the court dismissed multiple appeals and petitions challenging Sections 4B and 4C of the Income Tax Ordinance (ITO) 2001, ruling that the levy does not violate fundamental rights and falls squarely within parliament’s constitutional authority to tax income.
The verdict was issued by a three-judge bench headed by Aminuddin Khan, along with Justice Syed Hasan Azhar Rizvi and Justice Syed Arshad Hussain Shah.
The ruling was delivered by a three-judge bench led by Chief Justice Aminuddin Khan, alongside Justice Syed Hasan Azhar Rizvi and Justice Syed Arshad Hussain Shah.
The court found that Section 4B, introduced in 2015, created no hostile or unreasonable classification, as it is based on income thresholds and applies uniformly within the same class of taxpayers. It ruled that such classification rests on an “intelligible differentia” and has a rational connection with the policy objective, thereby meeting constitutional standards.
The FCC reaffirmed that parliament has full authority under the Constitution to impose, amend or abolish taxes through a Finance Act as part of a Money Bill, and that fiscal policy choices fall primarily within the legislative domain rather than judicial review.
Section 4B, enacted through the Finance Act, 2015, imposed a super tax on individuals earning more than Rs500 million, originally to help fund the rehabilitation of internally displaced persons. Section 4C, introduced via the Finance Act, 2022, expanded the super tax regime to individuals and entities earning over Rs150 million from tax year 2022 onward.
The FCC also upheld Section 4C as intra vires the Constitution, ruling that it validly applies from tax year 2022 as enacted. In doing so, the court set aside rulings by the Sindh, Islamabad and Lahore High Courts that had restricted its retrospective application.
The judgment clarified that while retrospective taxation is permissible, it must not disturb “past and closed transactions.” It held that since tax returns for 2022 had not yet been filed at the relevant time, the imposition of the super tax did not violate settled rights.
Importantly, the FCC ruled that the super tax under Section 4C is a standalone tax on income, separate from the general income tax under Section 4 of the ITO, and therefore applies to capital gains as well.
However, the court carved out sector-specific safeguards. For exploration and production (E&P) companies, the super tax will apply only to the extent that total taxation does not exceed limits set under the Fifth Schedule and applicable petroleum concession agreements. Exemptions for benevolent and provident funds were also upheld.
For banking companies, the court ruled that Section 4C will apply from tax year 2023 at rates revised under the Finance Act, 2023.
‘What this means for international investors’:
Legal Certainty Restored
The FCC’s ruling resolves years of litigation and conflicting high court judgments, providing clarity and predictability in Pakistan’s tax regime—an essential factor for foreign investors assessing risk.
Stronger Fiscal Sovereignty Signal
By affirming parliament’s authority to impose income-based and, where justified, retrospective taxes, the court reinforces the stability of Pakistan’s constitutional and fiscal framework, reducing the likelihood of sudden judicial reversals.
Managed Risk for Key Sectors
The court’s tailored approach—particularly protections for Exploration and Production (E&P) companies and banks—signals awareness of investor sensitivities in capital-intensive sectors, helping preserve long-term investment viability.
Short-Term Tax Cost, Long-Term Policy Clarity
While the super tax increases the immediate tax burden on high earners and large corporations, investors benefit from policy finality, enabling more accurate financial forecasting and compliance planning.
Improved Investment Signaling
The verdict supports Pakistan’s broader effort to present itself as a jurisdiction governed by rule of law and institutional continuity, a positive signal for multinational firms and portfolio investors considering market entry or expansion.
For international investors, the decision may raise tax considerations but significantly reduces legal and regulatory uncertainty, which is often a bigger deterrent than taxation itself.
