Industries/sectors earning over Rs300m: SC directs payment of 4pc super tax within a week

ISLAMABAD: The Supreme Court of Pakistan (SC) has directed the industries/sectors earning income above Rs300 million, which are liable to pay 10 percent super tax for the Tax Year 2022, to deposit the same within one week, at the rate of four percent.

Moreover, in cases where a bank guarantee was furnished before the High Court, the same will be encashed to the extent of four percent by the Federal Board of Revenue (FBR).

In this regard, the SC has issued a judgement in the matter of super tax dated February 16, 2023.

The industries/sectors are airlines, automobiles, beverages, cement, chemicals, cigarette and tobacco, fertiliser, iron and steel, LNG terminal, oil marketing, oil refining, petroleum and gas exploration and production, pharmaceuticals, sugar, and textiles.

High-income earners directed to pay 50pc of super tax liability

Top chartered accountant and former Federal Board of Revenue (FBR) chairman Shabbar Zaidi is of the view that this order of the SC does not apply to taxpayers in Sindh and the Sindh High Court judgement on this matter continues to apply because the SC’s order deals with encashment of cheques that were issued pursuant to the Lahore High Court’s orders on this matter.

According to the SC’s order, the respondents which are liable to pay super tax at the rate of 10 per cent under the proviso shall deposit the same within one week at the rate of four per cent which is applicable to the assessee industries earning income exceeding Rs300 million as provided in Division II B but falling outside the proviso thereto. In the event that the respondents have furnished bank guarantees on the direction of the High Court then the same shall be en-cashed by the petitioner to the extent of four percent tax.

Learned counsels for the petitioner have pointed out that the tax year 2022 for which the impugned Super Tax under Section 4C of the Income Tax Ordinance, 2001 (“Ordinance”) has been imposed starts from July 1, 2021, until June 30, 2022. In the present case, the respondents being high-earning taxpayers with incomes greater or equal to Rs300 million claim that they do not fall within the purview of super tax for two reasons.

First, because their accounting year ended on December 31, 2021, prior to the close of Tax Year 2022 on June 30, 2022. Therefore, the impugned super tax was being demanded by the petitioner with retrospective effect.

The court is not persuaded by the arguments at this stage because according to the counsel for the petitioner, the accounting year of the respondents ends during the course of the Tax Year 2022 to which the provisions of Section 4C are lawfully applicable.

The order added that the rates of super tax under Section 4C are specified in Division IIB, Part I of the First Schedule to the Ordinance. However, the First Proviso to Division II B charges income earners of more than Rs300 million falling within the category of certain specified industries to a higher rate of tax at 10 per cent. Otherwise, the rate of tax is four per cent for such earners in other industries or businesses.

The High Court has found in favour of the respondents on that score on the ground of discrimination. The FBR chairman submitted that the said argument cannot form the basis of altogether striking down the impugned super tax because implicitly the respondents’ argument accepts liability to taxation at the rate of four per cent.

However, he is not able to explain to us the justification for charging super tax at a higher rate for industries specified in the first proviso. We grant him time to prepare his case on that point, the SC said.

The SC has issued notices to the respondents in all petitions. The case has been relisted in the week commencing March 13, 2023.

Copyright Business Recorder, 2023