Supreme Court Questions Legality of Super Tax on Provident Funds

The Supreme Court on Monday heard petitions challenging the imposition of a super tax on provident funds, with judges questioning whether such a levy is valid when income tax itself is exempt. A five-member constitutional bench led by Justice Aminuddin Khan examined arguments on whether provident funds, which enjoy statutory relief under the Income Tax Ordinance, could be subject to additional taxation. Justice Muhammad Ali Mazhar referred to Section 53 of the ordinance, asking if a trust fund could be treated as private property. Justice Hasan Azhar Rizvi cautioned that repeated super tax deductions could erode retirement benefits, noting that an initial levy could accumulate and diminish employees’ payouts. Both Rizvi and Mazhar raised concerns over the practicality of calculating advance super tax without knowing the final profit figures. The Additional Attorney General argued that while exemptions under the Second Schedule also cover super tax, the government retains authority to impose extra levies if fiscal needs demand. Counsel Asma Hamid countered that taxing provident funds contradicted legislative intent and undermined statutory relief. The bench pressed whether the government could legally impose a super tax when the income tax itself does not apply. Federal Board of Revenue counsel Hafiz Ehsan later began his submissions, indicating he would address constitutional issues while adopting arguments already presented. The hearing was adjourned until Tuesday after Justice Aminuddin Khan noted the bench could not continue due to scheduling constraints. The petitions contend that the super tax, first introduced in the 2022–23 budget as an additional levy of up to 10% on major industries, exceeds constitutional authority. The Federal Board of Revenue earlier told the court that the Lahore High Court had upheld the legality of the tax under Section 4C of the Income Tax Ordinance while reducing its rate to 4% for 16 sectors, including banking.