ISLAMABAD: The new tax proposed on windfall profits gains may be challenged in courts due to its applicability on past and closed transactions.

A tax expert explained that a new provision is proposed to empower the federal government to impose an additional tax on persons or classes of persons who have any income, profits or gains arisen due to any economic factors that resulted in unexpected income, profits or gains whether or not disclosed in the financial statements.

The salient features of this provision revealed that the provision has an overriding effect over other provisions of the Ordinance or any other law for the time being in force. It will be applicable for any of the five years preceding the tax year from tax year 2023 and onwards.

Sectors earning ‘windfall’ profits: FBR envisages ‘targeted’ taxation

The federal government by way of notification in the official gazette will determine economic factors including but not limited to international price fluctuation having bearing on any commodity price in Pakistan or any sector of the economy or difference in income, profits or gains on account of foreign currency fluctuation.

The rate will not exceed 50 per cent of the income, profit or gains and the scope, manner of payment and any exemptions shall be covered by the aforesaid notification.

Corresponding amendments have been made for application of the above provisions for insurance companies (Fourth Schedule), oil and gas exploration (Fifth Schedule), and banking companies (Seventh Schedule), the expert said.

A legal challenge to the implementation of these provisions may arise on certain constitutional grounds and principles laid down by the superior courts including with regard to past and closed transactions, the expert added.

Copyright Business Recorder, 2023