Pakistani exporters under the Final Tax Regime (FTR) can breathe a sigh of relief. In a landmark decision, the Appellate Tribunal Inland Revenue (ATIR) Karachi has ruled that super tax is not applicable to income earned under the FTR scheme.
Background:
- A textile exporter, operating as a public limited company, challenged the imposition of super tax on their income for the tax year 2022.
- The company argued that since they operate under the FTR, their tax liability is already settled via tax deductions at source by banks when export proceeds are received.
The Dispute:
- The tax department contended that the exporter failed to pay super tax under Section 4C of the Income Tax Ordinance 2001.
- The exporter, however, countered that Section 4C doesn’t override other tax laws like the FTR, citing a previous Islamabad High Court decision in favor of M/s Fauji Fertilizer Company Limited.
Retrospective Application Challenged:
- The exporter’s legal team further argued that the retrospective application of Section 4C (introduced in 2022 for the 2023 tax year) to their 2022 income was unfair and disrupted established legal rights.
ATIR’s Ruling:
- The Tribunal sided with the exporter, acknowledging the legitimacy of their arguments and aligning with previous judicial interpretations.
- They clarified that income under the FTR is exempt from super tax under Section 4C.
- The ATIR decision focused on deducting imputable income from the total income before calculating super tax under Section 4C. With this deduction, the exporter’s income fell below the Rs. 150 million threshold for triggering super tax.
Impact and Implications:
- This ruling provides significant clarity for exporters under the FTR, assuring them they won’t face additional super tax burdens.
- This decision is expected to have a widespread influence on similar cases across Pakistan, potentially impacting future tax assessments and compliance strategies for exporters.
