Super Tax case sees revenue vs profit debate in today’s hearing

ISLAMABAD: The Federal Constitutional Court on Tuesday heard arguments in a case challenging the levy of super tax, as counsel for a private company raised concerns over what he described as excessive and disproportionate taxation.

Appearing before the court, private company’s lawyer Mirza Mahmood Khan argued that before 2010, shareholder companies were not subject to such taxation. He said that the tax regime changed after 2010 with the introduction of Section 37A, under which super tax began to be imposed.

Khan told the court that his client relies heavily on bank financing, with nearly 70 per cent of its capital coming through loans. He maintained that after paying taxes to the government and interest to banks, companies are left with losses by the end of the financial year. Responding to this, Justice Hassan Azhar Rizvi remarked that businesses should ideally operate on their own capital.

The lawyer countered that small businesses in Pakistan are currently performing better due to a reduction in interest rates, but added that investors linked to the stock market are hesitant to invest because of what he termed heavy taxation. He argued that although the Federal Board of Revenue (FBR) maintains that super tax is imposed on profits, in practice it is being levied on total income.

Presenting an example, Mirza Mahmood Khan said that if a company has an income of Rs 500 million, it is required to pay super tax on the entire amount even if its actual profit is less than Rs 100 million. He asserted that the company’s stance is that tax should be levied strictly on profits rather than on total income.

The lawyer contended that the existing 10 per cent super tax effectively translates into a 67 per cent tax burden, which discourages investment and growth. Justice Rizvi observed that the state also aims to introduce investor-friendly policies.

Concluding his arguments, Mirza Mahmood Khan urged the court not to impose excessive measures, remarking that “one should not slaughter an entire goat for a single herb.” After the completion of his arguments, the court adjourned the hearing for a short break.