Super Tax Upheld: Legal Clarity Restored, Revenue Boost for Government, Nuanced Impact on E&P Sector
Pakistan’s Federal Constitutional Court (FCC), in a landmark ruling on January 27, 2026, dismissed all appeals against the super tax, upholding the constitutionality of Sections 4-B and 4-C of the Income Tax Ordinance, 2001, with effect from their respective enactment dates. The verdict restores the legal basis of the levy and is expected to help the federal government recover around PKR 310 billion in outstanding revenues.
The court firmly reaffirmed Parliament’s exclusive authority to impose taxes, rejecting challenges based on arguments such as retrospective application and double taxation. With this ruling, the prolonged legal uncertainty—spanning multiple high courts and even the Supreme Court—has finally come to an end.
What the Ruling Confirms
Sections 4-B and 4-C are now fully enforceable. Section 4-B relates to the super tax introduced for the rehabilitation of displaced persons, while Section 4-C extends the levy to high-earning individuals and companies. The structure of the tax has evolved over time:
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In 2015, a 5% super tax applied to corporate profits exceeding PKR 300 million.
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By 2022, the scope widened to include individuals earning more than PKR 150 million annually, with the maximum rate raised to 10%.
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Currently, the rate stands at 4% for banking companies and generally around 3% for other sectors, with variations based on income thresholds.
Importantly, the court clarified that the super tax does not apply to mudarabahs, mutual funds, or unit trust funds.
Implications for the Oil & Gas (E&P) Sector
While the ruling is a clear positive for government revenues and fiscal visibility, its impact on the oil and gas exploration sector is more nuanced. For E&P companies, tax liability is not meant to be applied mechanically at headline super tax rates. Instead, under the Fifth Schedule of the Income Tax Ordinance, the Commissioner is required to compute tax payable after examining each Petroleum Concession Agreement (PCA) on a block-by-block basis. No super tax can be charged beyond the limits specified in Rule 4 of the Fifth Schedule.
In practice, E&P companies had initially been provisioning super tax at around 10% of profit before tax. However, based on our channel checks, reassessment under individual PCAs may result in lower effective tax liabilities where limited tax space remains available under concession agreements. This opens the door for potential reversals of excess provisions once computations are finalized by companies and tax authorities.
Bottom Line
The FCC’s verdict is a decisive win for legal certainty and government revenues, potentially adding over PKR 300 billion to the exchequer. At the same time, for E&P companies, the clarified framework suggests that the actual earnings impact may be less punitive than initially feared—and could even turn modestly positive on a recurring basis where PCA tax headroom is constrained.
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