On January 27, in a landmark ruling, the super tax was held to be constitutional. The central flaw in the judgment is that it effectively endorsed retrospective taxation, despite long-standing constitutional jurisprudence to the contrary. Section 4-C was imposed after the relevant income had already been earned, violating the doctrine of legitimate expectation — taxpayers are entitled to know the tax consequences of their actions before making economic decisions.
By upholding a retrospective levy without applying a strict test of proportionality or necessity, the verdict has weakened Article 4 of the constitution, which guarantees the right to be dealt with in accordance with law. This is not a technical concern. Once retrospectivity is normalised, tax certainty collapses — and with it, the very basis of investment planning and economic confidence.
The verdict has treated the super tax as a ‘separate levy’, sidestepping the economic substance of the matter. In reality, the tax is imposed on the same income, in the same year, on the same assessee. Renaming it a ‘super tax’ does not alter its incidence. By failing to apply a substance-over-form test — a principle repeatedly endorsed in Pakistan’s tax jurisprudence — a troubling precedent has been set. If the state can relabel income taxes at will, there is effectively no constitutional limit on the tax burden.
Yes, the verdict correctly observed that courts cannot set tax rates. But it overcorrected by effectively abandoning reasonableness and equality review altogether. The courts were not being asked to rewrite fiscal policy; they were asked to examine three narrow issues: irrational slabs, discriminatory thresholds, and the absence of a rational nexus between the stated purpose and a permanent tax levy.
In doing so, the verdict appears to have invoked separation of powers as a shield against rationality review. That is a category error. Judicial review of constitutionality is not judicial interference in policy but the court’s core function.
There isn’t a jurisdiction where parliamentary competence is treated as absolute. Fiscal legislation must always satisfy constitutional tests of non-arbitrariness under Article 25 and of reasonableness.
The verdict appears to have failed to interrogate the purpose of the tax. Apparently, a ‘One-Time Emergency Tax’ has been converted into a permanent revenue tool. Can emergency powers be converted into permanent fiscal architecture without violating constitutional proportionality?
Yes, the verdict prioritises revenue certainty for the state over legal certainty for capital. Yes, investors will read this negatively. Yes, retroactive risk has been validated. Yes, contractual expectations have been weakened. Yes, courts are signalling deference over discipline. Yes, fiscal policy has been insulted from meaningful judicial review.
Yes, the super tax may raise around Rs300 billion for the exchequer. But it will also raise Pakistan’s risk premium — and that carries a far larger, recurring cost. Even a 100–150 basis point increase in Pakistan’s risk premium translates into $1.5-2.0 billion a year in higher borrowing costs on sovereign and quasi-sovereign financing, and a multiple of that in deferred or cancelled private investment. Add the impact of postponed FDI, delayed project closures and the annual economic loss easily exceeds Rs1 trillion.
In short, Pakistan may collect Rs300 billion once, but it risks losing six to seven times that amount every year through higher financing costs and lost investment.
The verdict may have settled domestic law, but it has exposed Pakistan internationally. Pakistan has Bilateral Investment Treaties (BITs) and foreign investors may not stop at Pakistani courts; they may go to ICSID or UNCITRAL. For the record, internationally, retrospective taxation strikes at the heart of the ‘fair and equitable treatment’ standard.
Yes, this verdict collides with the SIFC’s entire pitch to foreign investors which rests on: stable tax regimes, forward-looking rules and protection from post-facto policy changes. By upholding retrospective super tax it has signaled that rules can change after capital is committed. That directly contradicts the SIFC’s value proposition.
Red alert: Courts do not repel capital by striking down taxes; they repel capital by making rules unpredictable. On that test, this verdict fails Pakistan’s most urgent economic objective.
The writer is an Islamabad-based columnist.
