Lahore – The Lahore High Court (LHC) has declared that the enhanced rates of withholding tax on late filers of income tax returns, introduced by the Finance Act 2024, will not apply to transactions, returns, or assessments that were finalized before the enactment of the new law. This verdict represents a major development in tax legislation, providing clarity for taxpayers on the scope of the amendments.
The judgment of the LHC was delivered in response to a petition filed by the Defence Housing Authority (DHA), challenging the retrospective enforcement of the new withholding tax provisions. The DHA had sought a ruling from the court asserting that the changes made to Section 100BA, in conjunction with Rule 1-A of the Tenth Schedule of the Income Tax Ordinance 2001, as amended by the Finance Act 2024, were prospective in nature and should not affect previously completed tax filings.
The LHC upheld the petition, categorically stating that the provisions introduced under Rule 1-A and its accompanying proviso do not possess any retrospective power. The court’s ruling explicitly emphasizes that these tax law changes cannot be retroactively applied to transactions, returns, or assessments that were concluded prior to the promulgation of the Finance Act 2024.
In its order, the LHC made clear that Rule 1-A and the corresponding amendments brought through the Finance Act would only impact future tax obligations, reinforcing the principle that tax laws must be forward-looking unless explicitly stated otherwise. This decision has significant implications for taxpayers, particularly those who finalized their income tax filings or transactions before the 2024 fiscal changes came into effect.
Legal experts have lauded the LHC’s judgment as a victory for taxpayer rights, arguing that the ruling safeguards individuals and businesses from the undue burden of retroactive taxation. By preventing the application of enhanced withholding tax rates on past filings, the decision provides a measure of relief for those who may have been adversely impacted by the new legislation had it been enforced retroactively.
The Finance Act 2024 introduced several revisions to Pakistan’s tax framework, including increased penalties and higher withholding tax rates for late filers of income tax returns. However, this ruling reaffirms that these changes will only affect future financial actions and not past transactions, ensuring a clearer, more predictable tax landscape for the country.