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SC to rule on taxation of charitable institutions in Karachi

The Supreme Court of Pakistan is set to adjudicate on whether charitable institutions operating religious schools, hospitals, or certain businesses in Karachi can be subjected to additional taxes imposed on their utility bills, excluding federal taxes on electric power and natural gas supplies.

Chaired by Justice Syed Mansoor Ali Shah and comprising Justices Muhammad Ali Mazhar and Athar Minallah, the bench convened on Monday to address a series of challenges brought forth by nearly 18 charitable organizations, contesting the Sindh High Court’s (SHC) ruling of August 24, 2023, which dismissed similar pleas.

While the Supreme Court stayed the SHC’s judgment, it opted to resume proceedings on a day-to-day basis starting from June onwards.

One of the collective petitions, filed by entities including Messers Dawat-e-Hadiya, Messers Saifiyah Girls Talim Trust, and Messers Syedna Taher Saifud­din Memorial, argued that these organizations did not engage in taxable supplies or activities under the Sales Tax Act 1990. Therefore, they contended that additional taxes could not be levied against them.

The petitioners contested the imposition of extra sales tax through a Statutory Regulatory Order (SRO) issued by the Federal Board of Revenue (FBR) under Section 3(3) of the Sales Tax Act 1990 on electricity and natural gas bills. This levy was enforced on the basis that the petitioners were neither registered under the 1990 act nor listed as “active taxpayers.”

In contrast, the SHC determined that the additional tax was imposed on the supply of electric power and natural gas, rather than on the petitioners’ business activities. The court held that since the tax was not directly related to the organizations’ taxable activities, no exemption could be granted based on their non-engagement in taxable pursuits.

The Supreme Court’s forthcoming ruling holds significant implications for charitable institutions in Karachi, as it will determine the extent of their taxation liabilities and could shape the regulatory landscape surrounding their financial obligations.

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