ISLAMABAD, Feb 20 (APP): The Federal Constitutional Court has declared the levy of sales tax on construction services in Khyber Pakhtunkhwa constitutional, dismissing appeals filed against the Khyber Pakhtunkhwa Sales Tax on Services Act, 2022.
The court ruled that after the 18th Constitutional Amendment, the authority to impose tax on services rests with the provinces.
The written judgment was issued by Justice Aamir Farooq. It stated that following the 27th Constitutional Amendment, the Supreme Court can no longer strike down laws on constitutional grounds, as the power of constitutional interpretation has been restricted to a designated forum.
The court observed that after the 27th Constitutional Amendment, the Constitutional Court may call for records from any court or tribunal to examine constitutional questions.
According to the verdict, Serial No. 14 of Schedule II of the Khyber Pakhtunkhwa Sales Tax on Services Act, 2022, is not contrary to the Constitution. The court clarified that the federal government is empowered to levy tax only on goods, whereas construction activities fall within the category of services.
The court held that Serial No. 14 of the Act specifically relates to construction services and does not include goods; therefore, it cannot be declared unconstitutional.
The court further directed that a mechanism be devised to ensure that no citizen or company is subjected to double taxation on the same subject. For this purpose, the revenue authority has been instructed to frame clear principles requiring contractors to distinctly segregate their total project budget into services and goods, ensuring transparency in tax implementation.