LHC directs the government to reconsider stamp duty on mergers.

The Lahore High Court’s Rawalpindi bench has instructed the Punjab government to carefully consider stamp duty on corporate mergers. Failure to resolve the problem might result in severe economic losses for the state.

The decision came during the hearing of an intra-court appeal contesting the imposition of stamp duty on mergers, which the petitioners claim violates Section 282(5) of the Companies Act, 2017. The court is considering whether Punjab may levy stamp duty on corporate mergers while Islamabad and Sindh do not, resulting in a gap that harms firms operating in the state.

A division bench led by Justice Jawad Hassan has directed Punjab’s Chief Secretary to call a high-level conference with relevant officials to explore the legal complexity of the situation.

The court emphasized that a badly planned ruling might compel enterprises to migrate from Punjab, harming vital commercial hubs including Lahore, Faisalabad, Multan, Sialkot, and Gujranwala.

Muzaffar Ahmed Mirza, the Chief Prosecutor of Pakistan’s Securities and Exchange Commission (SECP), will also attend the conference. The chief secretary has been asked to produce a complete report before the next hearing, which is set for April 15, 2025. If the government fails to reach an agreement, the court will rule based on legal interpretations of the Companies Act and the Stamp Act.

The court has also expressed concern about the distortion of legal requirements in prior cases in which stamp duty on mergers was sustained.

It has asked authorities to investigate if the province’s tax policies have persuaded businesses to transfer their headquarters outside Punjab.

Furthermore, the court is considering whether a merger sanction order qualifies as a “conveyance” under the Stamp Act and if stamp duty should be imposed under Section 27-A of the Act.