ISLAMABAD: The Federal Constitutional Court on Friday dismissed multiple petitions challenging the Khyber Pakhtunkhwa (KP) Sales Tax on Services Act, 2022, ruling that the provincial levy on construction services does not violate the Constitution.
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A two-judge bench, headed by Justice Aamer Farooq, addressed appeals against a May 13, 2025 Peshawar High Court decision. Petitioners, including M/s Matracon Pakistan (Pvt) Ltd, Anwar Khan, Khawaja Muhammad Khan, Zhongmei-Al Mehreen JV, Merryland Housing Society Mardan, and Subhan Smart City Society Mardan, had contested Serial No. 14 of Schedule 2, which imposes a 2% sales tax on services provided by construction contractors, architects, engineers, developers, interior designers, and allied professionals.
entire contractual amounts. Ruling strengthens provincial revenue scope & clarifies tax compliance principles for construction sector. Article 175E grants court authority to adjudicate substantial constitutional interpretation questions.
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The law specifically covers construction activities including buildings, roads, bridges, flyovers, underpasses, electro-mechanical works, turn-key projects, and engineering, procurement, and construction (EPC) contracts. Show-cause notices issued by the Khyber Pakhtunkhwa Revenue Authority sought tax on payments received from July 2021 to April 2022, including amounts for goods supplied under contracts.
The FCC examined Entry 49 of the Constitution, which prohibits federal taxes on services, and found no inconsistency. The court noted that the law allows registered taxpayers to adjust or claim refunds for taxes paid on goods used in providing taxable services.
The bench also clarified its jurisdiction under Article 175E(5), holding that the FCC can hear cases involving substantial questions of constitutional interpretation even when not expressly enumerated.
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Concluding its judgment, the FCC ruled that Serial No. 14 of Schedule 2 is constitutional and not ultra vires, emphasizing that relevant constitutional and statutory provisions collectively support the legality of the provincial sales tax on construction services.