ISLAMABAD — The Civil Aviation Authority (CAA) has taken a significant step by approaching the Supreme Court of Pakistan in a dispute over taxes exceeding Rs50 billion. This action comes amidst ongoing challenges in maintaining discipline and managing inter-departmental conflicts.
The CAA, which oversees Pakistan’s aviation sector, has filed a civil petition for leave to appeal despite a directive from the Sindh High Court to resolve the matter amicably. The Supreme Court is scheduled to hear the appeal on Wednesday, just days before the Federal Board of Revenue (FBR) is expected to collect Rs9.5 billion from the CAA as advance income tax.
Previously, the CAA contested the advance tax levy in the Sindh High Court, which suggested that the matter should be addressed by the Alternate Dispute Resolution Committee (ADRC) or the federal cabinet, in accordance with Rule 8 of the Rules of Business. However, the CAA has opted to escalate the dispute to the Supreme Court instead of engaging with the ADRC.
Read More: Cement prices in Pakistan experience significant decline
Implications for the Federal Board of Revenue
This legal challenge comes at a critical juncture for the FBR, which is struggling to meet its revenue targets. The FBR needs the Rs9.5 billion payment by September 25 to help achieve its monthly revenue target of Rs1.2 trillion. As of Monday, the FBR had collected approximately Rs368 billion, leaving a shortfall of Rs828 billion that must be met by the end of the month, averaging Rs60 billion per day.
Tax Exemption Claims and Legal Controversies
The CAA’s decision to pursue the Supreme Court route highlights growing tensions between federal government departments. The FBR asserts that under the Income Tax Ordinance, the CAA is obligated to pay taxes, with an annual liability ranging between Rs50 billion to Rs60 billion. In contrast, the CAA argues that, as a regulatory body, it should not be classified as a government-owned entity for tax purposes.
Earlier this year, Parliament bifurcated the CAA into two new entities: the Pakistan Airports Authority (PAA) and the Pakistan Civil Aviation Authority (PCAA). This restructuring aimed to address safety concerns raised by the European Union regarding Pakistan International Airlines but also sought to exempt the new entities from taxes. This exemption decision has conflicted with commitments made to the International Monetary Fund (IMF).
The CAA claims tax exemptions under Section 34 of the Civil Aviation Act, 2023, and Section 38 of the Pakistan Airports Authority Act, 2023, which explicitly exempt these entities from taxes. However, the FBR has resisted these exemptions, arguing that they were not granted under the Income Tax Ordinance of 2001, thus violating Section 54 of the Ordinance.
The Ministry of Law supports the CAA’s claim for tax exemption, while the FBR and the Ministry of Finance oppose it. The FBR has asserted that the Income Tax Ordinance is the only special law governing taxation and that the Pakistan Civil Aviation Act, 2023, and the Pakistan Airports Authority Act, 2023, do not qualify as special laws for tax purposes.
Despite the Ministry of Law’s support for the CAA’s tax exemption claim, the FBR is continuing its efforts to recover the owed amount. Earlier this year, the FBR successfully recovered approximately Rs29 billion from the CAA.
This complex dispute underscores the ongoing friction between various government bodies and the broader challenges facing Pakistan’s tax and regulatory systems.
