ISLAMABAD: The Sindh High Court (SHC) has dismissed the petitions challenging the levy of tax on foreign assets of a resident individual as defined in Section 8(13) (c) of the Finance Act, 2022.
The judgment of a division bench of the SHC comprising Justice Muhammad Junaid Ghaffar and Justice Agha Faisal said: “We do not see any justifiable reason to declare the provisions of Section 8 of the Finance Act, 2022, as ultra vires to the Constitution; hence all these petitions are hereby dismissed.”
One hundred & seventy-two (172) petitioners have challenged vires of Section 8 of the Finance Act, 2022, whereby, a tax has been levied on the value of assets at the rates specified in the First Schedule to that Section for the tax year 2022 and onwards, whereas, the present challenge of the petitioners is in respect of and only to the extent of Section 8(2)(b), ie, levy of tax on foreign assets of a resident individual as defined in Section 8(13) (c) which includes moveable and immoveable properties. The main challenge was that the Parliament has no legislative competence to levy such a tax on foreign assets of the petitioners.
The judgment noted if at all any exclusive powers were to be vested in the provinces in respect of all sort(s) of taxes on immoveable property, then perhaps, the legislature would have definitely taken recourse to the use of word “except” instead of “not including”.
This has not been done. Notwithstanding, the issue as to the territorial limits as contemplated in Articles 141 and 142 still remains intact and what is not within the territorial limits of the province will revert back to the Parliament.
The court said that one must also remain mindful that per settled law in deciding question of legislative competence the Constitution is not to be construed with a narrow or pedantic approach and it is not to be construed as a mere law but as a machinery by which laws are made and such interpretation should be made broadly and liberally.
It is also a settled law that the entries in the Constitution only demarcate the legislative fields of the respective legislature and do not confer legislative power as such.
It is further settled that the power to levy taxes, being a sovereign power controlled only by the Constitution, any limitation on that power must be expressed.
The judgment stated that the interpretation of any provision of the Constitution will be true and perfect only when the court looks at the Constitution holistically and keeps in view all important and significant features of the Constitutional scheme constantly reminding itself of the need for a harmonious construction lest interpretation placed on a given provision has the effect of diluting or whittling down the effect or the importance of any other provision or feature of the Constitution.
The judgment pointed out that the concept of taxation in respect of foreign income is now a worldwide phenomenon and majority of the countries have incorporated the provisions relating to taxing incomes of resident persons.
The same is also applicable in Pakistan under Section 9 of the Income Ordinance, 2001 with certain exception; but now is a matter of common knowledge that a person, who is a resident in a country like Pakistan, is liable to tax in respect of his foreign income.
Admittedly the foreign income is not earned within the territorial jurisdiction of Pakistan; but in terms of Constitutional provisions, which empowers the Parliament to levy taxes on income of a resident person; his income abroad is also taxed and such tax has never been disputed before the court.
The judgment noted that in the instant matter, what is being taxed by the Parliament is the capital value of foreign assets, which now stands declared and is part of the wealth tax returns of the petitioners/resident person.
Copyright Business Recorder, 2022
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