ISLAMABAD: In a significant development just days before the federal budget, the Federal Constitutional Court (FCC) has ruled against the imposition of a 4 percent additional sales tax on poultry feed manufacturers supplying feed to unregistered poultry farms, providing major relief to Pakistan’s poultry industry.
The detailed judgment, issued by a two-member bench comprising Justice Aamer Farooq and Justice Muhammad Karim Khan Agha, overturned an earlier ruling by the Lahore High Court and nullified tax demands raised by the Federal Board of Revenue (FBR). The court accepted appeals filed by poultry feed manufacturers and poultry farmers, concluding that the disputed levy could not legally be imposed in the circumstances presented.
At the center of the dispute was Section 3(1A) of the Sales Tax Act, 1990, which authorizes a 4 percent “further tax” on taxable supplies made to unregistered persons. Tax authorities argued that poultry feed manufacturers were liable for the additional tax because they supplied feed to poultry farmers who were not registered for sales tax.
However, the appellants maintained that poultry farmers are exempt from sales tax under Section 13 of the Sales Tax Act and therefore have no legal obligation to register. The court agreed with this interpretation, stating that the purpose of the further tax regime was to encourage registration of businesses required by law to register, not to penalize sectors that are expressly exempt.
In its ruling, the bench observed that the law targets taxable persons who fail to register despite being legally obligated to do so. It emphasized that applying the further tax to exempt entities would contradict the intent of the legislation and unfairly expand the scope of the provision.
The judgment further noted that poultry farmers benefit from statutory exemptions and are therefore outside the registration requirements of the sales tax framework. Since the farmers were not legally required to register, the court held that neither they nor the feed manufacturers supplying them could face additional tax liabilities arising from non-registration.
The FCC also warned that imposing the levy on feed manufacturers would likely increase production costs and transfer the financial burden to poultry farmers through higher feed prices. Such an outcome, the court said, would undermine the policy objective behind granting tax exemptions to the sector.
Addressing the legal interpretation of the provision, the bench highlighted that tax laws imposing liabilities must be construed strictly. Any ambiguity, it said, should not be interpreted against taxpayers, reinforcing a long-established principle of tax jurisprudence.
In reaching its decision, the court relied on the Supreme Court’s precedent in Muhammad Arif Ice Factory v Federation of Pakistan (2021), which held that further tax could not be imposed where industries or sectors enjoyed statutory exemptions under existing tax laws.
The ruling is expected to provide substantial financial relief to poultry feed manufacturers and poultry farmers, who have been grappling with rising feed costs, energy prices, and transportation expenses. Industry stakeholders have long argued that the additional tax increased operational costs and ultimately affected poultry production.
Beyond the poultry sector, legal experts believe the judgment could influence future disputes involving exempt industries and the interpretation of further tax provisions under Pakistan’s sales tax regime. The decision may also prompt a review of similar tax assessments involving entities not legally required to register.
The verdict comes at a sensitive time as the government finalizes revenue measures ahead of the federal budget, scheduled for presentation on June 5. With authorities seeking to expand the tax base and boost revenue collection under ongoing economic reform commitments, the ruling could pose fresh challenges to fiscal planning while offering a significant victory for the poultry industry.
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