KARACHI: The Sindh High Court (SHC) on Friday dismissed a set of identical petitions impugning the imposition of capital value tax (CVT) on foreign assets.

Turning down 172 petitions, a two-judge bench headed by Justice Muhammad Junaid Ghaffar observed that it did not notice any justifiable reason to declare the provisions of Section 8 (capital value tax 2022) of the Finance Act 2022 as ultra vires to the Constitution.

The petitioners have challenged vires of Section 8 whereby a tax has been levied on the value of assets at the rates specified in the first schedule to the section for tax year 2022 and onwards.

Whereas, the SHC said the present challenge of the petitioners was in respect of and only to the extent of Section 8(2)(b) i.e., levy of tax on foreign assets of a resident individual as defined in Section 8(13) (c) ibid which included moveable and immoveable properties.

The challenge was mainly on the ground that parliament had no legislative competence to levy such a tax on foreign assets of the petitioners, it added.

The SHC in its judgement pointed out that the concept of taxation in respect of foreign income was now a worldwide phenomenon and majority of the countries had incorporated the provisions relating to taxing incomes of resident persons.

The same is also applicable in Pakistan under Section 9 of the Income Ordinance, 2001 with certain exception, but now is a matter of common knowledge that a person, who is a resident in a country like Pakistan, is liable to tax in respect of his foreign income, according to the verdict.

The court also said: “Admittedly the foreign income is not earned within the territorial jurisdiction of Pakistan; but in terms of Constitutional provisions, which empowers the Parliament to levy taxes on income of a resident person; his income abroad is also taxed and such tax has never been disputed before the Court.”

It further noted that in the instant matter, the parliament had taxed the capital value of foreign assets, which now stood declared and was part of the wealth tax returns of the petitioners/resident person.

In most of the cases, and barring few exceptions, (which is not relevant for the present purposes) these properties and assets were undisclosed for a number of years.

However, pursuant to the Foreign Assets (Declaration and Repatriation) Act, 2018, the petitioners as well as other taxpayers availed such amnesty and after paying the requisite tax, they declared those properties under their wealth tax returns, it added.

“These are now part of the Wealth Tax Returns of the Resident taxpayers; therefore, even otherwise there is a nexus of these properties with the income and wealth of the resident taxpayers and there appears to be no impediment or restriction for the Parliament to levy the tax in question,” the SHC noted.

Insofar as the taxing foreign assets through impugned legislation excluding the immovable properties is concerned, the bench said that no substantial arguments were made by the lawyers for petitioners and their main focus was in respect of immovable properties and the use of word “not including” in Entry-50 and on such basis they had contended that the parliament did not have any legislative powers to levy tax on foreign immovable properties.

As to moveable assets, even that argument was not at all applicable, whereas, no other ground was raised in that regard as to the impugned levy being ultra vires to the Constitution; or otherwise the parliament was not competent to levy such tax on moveable foreign assets, it concluded.

Published in Dawn, December 31st, 2022