Federal Constitutional Court declares super tax an additional tax on income

The Federal Constitutional Court (FCC) has ruled that super tax is an additional tax on income and cannot be applied to income streams that are exempt under the Income Tax Ordinance, 2001.

As per media reports, in its judgment, the court held that the super tax derives its legal basis from Entry 47 of Part I of the Federal Legislative List, making it dependent on the primary tax framework. It said that where no income tax is payable, super tax cannot be imposed.

The ruling clarified that exempt income, including certain capital gains on immovable property and securities, would not be subject to super tax if they fall outside the tax net due to holding period, inheritance or other exemptions under the law.

The court also stated that the same principle applies to agricultural income, which is not subject to federal income tax, whether generated through the use or disposal of property.

The judgment set aside earlier findings of the Islamabad High Court to the extent that they allowed application of super tax on income streams under the Final Tax Regime and other separate tax regimes. The court termed such interpretations legally unsustainable.

The court further examined taxation of exploration and production companies, noting that their income is governed under a separate framework provided in the Fifth Schedule of the Income Tax Ordinance. It said such regimes, including those under Petroleum Concession Agreements, cannot be overridden through additional levies.

The ruling is expected to impact sectors operating under special tax regimes by limiting the application of super tax and clarifying its scope within the existing legal framework.

The court said the decision reinforces the principle that a secondary tax cannot exist independently of a primary taxable base.