Days Before Budget, Court Delivers Massive Tax Shock to Shehbaz Government

ISLAMABAD: In a crucial turn of events just a few days ahead of the launch of Budget 2026-27, the Constitutional bench has made a ruling against the imposition of 4% additional taxation on the poultry feed mills, which could prove to be a blow for the government in terms of its revenue projections.

A two-member Constitutional Bench headed by Justice Aamer Farooq declared the tax collection illegal and set aside the Lahore High Court's verdict

According to Focus Pakistan, the verdict pertained to the imposition of tax in regards to the sale of feed to unregistered poultry farms, and Section 31A of the relevant law. The Constitutional Bench observed that the provision contains ambiguity and does not support the imposition of an additional tax on poultry feed manufacturers supplying feed to farms that are legally exempt from registration requirements.

Court Finds Legal Protection for Non-Registered Poultry Farms

According to the detailed judgment, the government had introduced the additional 4% tax through the Finance Act 2024. Authorities sought to collect the tax from poultry feed mill owners when they supplied feed to poultry farms that were not registered under the tax regime.

Also Read: Govt Continues to Impose Heavy Taxes on Essential Food Items Ahead of Budget 2026-27

However, the court noted that poultry farms already enjoy tax exemption under the law. Since the law exempts these farms from taxation, it does not require them to obtain tax registration. The bench emphasized that the legal framework grants complete protection to non-registered poultry farms operating under the exemption.

The judgment further stated that authorities cannot penalize either poultry farms or poultry feed mills for failing to comply with a registration requirement that the law itself does not impose.

Lahore High Court Verdict Overturned

The Constitutional Bench disagreed with the Lahore High Court’s earlier interpretation, which had upheld the government’s position and allowed the collection of the additional 4% tax from poultry feed mills. By setting aside that ruling, the court removed a tax burden that industry stakeholders had challenged since the introduction of the Finance Act 2024. Owners of poultry feed mills had petitioned the Constitutional Bench after making the point that the charge of tax on business with exempted parties was discriminatory and hence illegal.

The bench agreed and held that there was no sufficient legal justification for charging this tax to begin with.

Revenue Impact Ahead of Budget 2026-27

The ruling has been made amid a crucial period when policy makers have reached the last leg of the process towards implementing revenue-generating policies that will be included in the forthcoming budget. Although it is not clear how much revenue the government stands to lose as a result of the ruling, many tax and legal experts opine that it might change the revenue projections from the agricultural sector.

Poultry industry stakeholders, who have significant importance within the food chain system of Pakistan, will probably be happy with the judgment as well. These stakeholders had been contending that any extra taxation imposed on feed manufacturing companies would add to the cost of production and raise food prices even more.

Now with the Budget 2026-27 just around the corner, one can expect a renewed discussion of tax policy, exceptions, and the overall plan to meet the budget target without putting extra pressure on the economy.