LHC cuts discriminatory super tax from 10pc to 4pc

LAHORE: The Lahore High Court (LHC) has reduced the super tax on large corporations from 10 per cent to 4pc after declaring it discriminatory, but refused to annul the tax altogether.

The order on Tuesday was passed by LHC Justice Jawad Hassan on petitions seeking to strike down the tax imposed last year.

The petitioners also challenged the amendment to the Income Tax Ordinance, 2001 — introduced through the Finance Act, 2022 — which imposed the super tax.

The “super tax” on 13 large-scale industries was imposed in 2022 as the government attempted to shore up revenues and support the poor amid rising inflation.

No rationale behind picking 13 industries for added levy, judge observes

Through an amendment to Section 4C of the Income Tax Ordinance, the super tax was imposed on the earnings from cement, steel, sugar, oil and gas, fertilisers, LNG terminals, textile, banking, automobile, tobacco, beverages, chemicals and airlines sectors.

The Division IIB, Part I of First Schedule of the ordinance already imposed a 4pc tax on high-earning individuals when their income exceeded Rs300 million. However, the government hiked the rate to 10pc for the 13 selected industries by inserting an added provision to the division.

The added provision created a sub-classification of industries and was thus prima facie discriminatory as the 13 specified industries were held liable to pay the tax at a rate more than double of that already in place, observed the judge.

He noted that the Federal Board of Revenue (FBR) counsel and other respondents were unable to demonstrate any rationale for the classification of industries on which super tax was imposed.

The counsel for one of the petitioners argued that their client owned a limited company listed with the stock exchange and the year for which the tax was imposed already ended in December 2021.

The annual general meeting for the taxed year was held in April 2022 and profit was distributed among all shareholders in May 2022. Therefore, the super tax was not applicable being a past and closed transaction.

The FBR’s counsel argued the petitioners were liable to pay the tax under section 4C and could not take advantage of the benefit granted to them under section 74 of the ordinance.

He said objections to the applicability of the tax based on the doctrine of past and closed transactions were invalid as payments of dividends and purported investments were not equal to the finalisation of accounts.Therefore, the reliance on the entire doctrine was misplaced and wrongly stretched by many petitioners to obtain an exemption from their tax obligations.

Published in Dawn, June 28th, 2023

from The Dawn News - Home https://ift.tt/EtKjbNH