Karachi, May 23, 2024 — In a significant ruling, the Appellate Tribunal Inland Revenue (ATIR), Karachi, has determined that super tax is not applicable to income falling under the Final Tax Regime (FTR) for exporters.
This decision was rendered by the ATIR Division Bench-III Karachi in the case involving a prominent textile exporter and the Commissioner Inland Revenue, Zone-III, Medium Taxpayer Office (MTO) Karachi.
The textile exporter, a public limited company, filed its income return for the tax year 2022, asserting exemption from the provisions of section 4C of the Income Tax Ordinance 2001. The company argued that its tax liability under this provision was fully discharged upon realization of export proceeds, as banks deduct the applicable tax at source.
Upon review, the tax department noted the absence of super tax payment under section 4C and subsequently issued a notice to the exporter. However, the ATIR found merit in the exporter’s argument, referencing the Islamabad High Court’s decision in the case of M/s Fauji Fertilizer Company Limited (reported as 128-TAX-141). The court had previously held that the provisions of section 4C should not override other tax laws, especially since the term “Notwithstanding” was not included in section 4C.
The appellant’s legal team highlighted that section 4C, introduced via the Finance Act 2022 for the tax year 2023, was retrospectively applied to the tax year 2022. They contended that a charging section should not have retrospective effect as it disrupts settled rights, which is inherently unfair and arbitrary.
The Tribunal agreed with the appellant’s position that the imposition of super tax under section 4C should exclude income already subjected to the final tax regime. They pointed out that the imputable income should be deducted from the total income before calculating the tax under section 4C. If this deduction is made, the appellant’s total income falls below the Rs 150 million threshold necessary to trigger the super tax provision.
The ATIR’s ruling emphasized that the legal arguments presented by the appellant were persuasive and consistent with prior judicial interpretations. They concluded that section 4C did not apply to income under the FTR, effectively exempting the textile exporter from the super tax for the tax year 2022.
This decision provides clarity for exporters under the FTR, reinforcing that income within this regime is shielded from additional super tax liabilities, thereby offering a significant reprieve to businesses operating under these conditions. The ruling is expected to have wide-reaching implications for similar cases, potentially influencing future tax assessments and compliance strategies for exporters across Pakistan.
