Pakistan court allows companies to offset super tax with tax credits

Pakistan's Federal Constitutional Court has ruled that commercial entities can adjust their super tax liability against tax credits, a decision that could alter how businesses manage their tax obligations. The ruling came in response to an appeal by CM Pak Limited, a Chinese multinational telecom operator, against a lower court's rejection of a similar plea.

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We find no justification for holding that super tax paid under Section 4C of the Income Tax Ordinance (ITO) is incapable of being adjusted where there is a tax credit under Section 168 of the ordinance, thereby compelling the taxpayer to pursue only the refund mechanism under Section 170.

Justice Aamer Farooq, authoring the judgment, stated there was no justification for preventing the adjustment of super tax paid against tax credits. He noted that compelling taxpayers to only pursue refunds would be an unnecessary constraint. The court found that interpreting the application of Chapter X of the Income Tax Ordinance in a restricted manner was unwarranted, especially when Section 168, concerning tax credits, is applicable.

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No principled basis has been offered for such a selective incorporation and restrictive interpretation.

The core issue was whether super tax paid under Section 4C of the Income Tax Ordinance 2001 was adjustable against tax credits under Section 168. The super tax, imposed on high-earning sectors, had its constitutional validity previously upheld by the court. Following this, the Federal Board of Revenue (FBR) had required CM Pak Limited to discharge its super tax liability. The company argued it had sufficient tax deductions to offset the super tax, but the FBR declined this, leading to the legal challenge.

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To hold otherwise would amount to reading into the statute a limitation that the legislature has not imposed.

The court clarified that a tax credit under Section 168 is distinct from a refund under Section 170, which requires a separate application process. The judgment emphasizes that if Chapter X of the ordinance is attracted, its provisions, including Section 168, should be applied as written, without imposing limitations not intended by the legislature.

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The company has available excess taxes deduction at source of Rs2.2 billion relating to tax year 2022, which was adjustable against the super tax payable as determined by good self in the notice dated Feb 19, 2026.