Huzaima Bukhari, Dr. Ikramul Haq & Abdul Rauf Shakoori
The abrupt demand for super tax payments running into hundreds of billions of rupees will drain working capital, disrupt cash flows, and make it impossible for many businesses to meet routine obligations such as salaries, utility bills, raw material imports, and bank repayments—Rehan Hanif, President Karachi Chamber of Commerce and Industry, Business Recorder, January 29, 2026
The short order announced by the Federal Constitutional Court (FCC) of Pakistan, established in the wake of Constitution (Twenty-seventh Amendment) Act, 2025 [27th Amendment], on January 27, 2026 upholding the supertax regime under sections 4B and 4C of the Income Tax Ordinance, 2001, raises some vital constitutional concerns as against those now dominating public commentary.
The problem is not merely, whether Parliament can impose an additional duty of income tax in extraordinary circumstances, which of course, it can. The real issue—unfortunately left completely unattended in the short order—is whether the State can impose super tax on income different from taxable income in addition to income tax already imposed. This was the central constitutional question raised in a large number of petitions, yet the short order by FCC posted on its website on Wednesday (announced on Tuesday) neither engages with it nor even acknowledges it. Such silence has serious jurisprudential consequences for tax legislation in Pakistan.
Before examining what FCC has said in its short order on super tax, it is imperative to note what the apex tax authority itself has previously pleaded—and how starkly that position has now shifted.
In a review petition filed by the Federal Board of Revenue (FBR) reported as (2023) 128 Tax 291 (S.C. Pak), involving section 4B of the Income Tax Ordinance, 2001, it was categorically pleaded that the levy imposed under section 4B was not “super tax” as envisaged under Pakistan’s tax treaty with Switzerland. The implication was unambiguous: the impost was being defended as something other than a super tax for treaty purposes. This plea of FBR was rejected categorically with well-founded judicial reasoning.
Before the FCC, FBR’s stance was diametrically opposite. It was argued—and the short order appears to accept—that Parliament has the authority to simultaneously levy Income Tax and Super Tax using two different income benchmarks.
It was shown to the FCC in Civil Miscellaneous Application (CMA) No. 2087/2024 in T.Case 38/2025 [Writ Petition No. 81051/2023 transferred from Lahore High Court] that section 4C does not merely impose an additional tax (super tax on income), it dismantles the very concept of income taxation by producing an effective tax rate exceeding 100 percent.
The bank’s taxable income under normal tax regime after adjustments stood at Rs. 33.21 billion. On this income, tax at the applicable rate of 39 percent resulted in a normal tax liability of Rs. 12.95 billion. After adjustment of tax credits, withholding taxes and advance tax, the bank actually stood in a refundable position under the ordinary charging provisions of the Income Tax Ordinance, 2001. However, under section 4C(2) of the Income Tax Ordinance, 2001, the base is not “income” as constitutionally understood, but a mechanically aggregated figure comprising:
- profit on debt,
- dividend income,
- capital gains,
- brokerage and commission, and
- income computed under the Seventh Schedule,
Disregarding admissible expenses, losses, or overall profitability of taxpayer, when this formula was applied, the income artificially subjected to section 4C came to Rs. 247.25 billion. At the statutory rate of 10 percent, this alone produced a minimum tax liability of Rs. 24.73 billion, entirely detached from real income.
When section 4C liability is added to:
- tax computed under section 99D (windfall tax), and
- tax already assessed under the normal regime,
the total tax payable rises to Rs. 39.86 billion. The result is startling and constitutionally indefensible. When the total tax payable (Rs. 39.86 billion) is measured against the actual taxable income (Rs. 33.21 billion), the effective rate of tax exceeds 120 percent.
When income tax that confiscates more than the income itself, it ceases to be a tax and becomes an expropriatory levy, directly offending the following provisions of the Constitution of Islamic Republic of Pakistan [“the Constitution”]:
- Article 23 (right to property),
- Article 24 (protection against compulsory acquisition),
- Article 4 (due process), and
The above calculation highlighted in CMA cited above was not speculative or hypothetical. It was built entirely on FBR’s accepted figures and placed before the Constitutional Bench first and then the FCC, demonstrating that section 4C operates as a parallel charging code, not a tax on income as envisaged in Entry 47, Part I of Federal Legislative List, Fourth Schedule to the Constitution.
The FCC, in its short order, has apparently failed to engage with this calculation, and determine constitutionality of a confiscatory tax. It confirms that section 4C is validated not as a fiscal necessity, but as a revenue shortcut—one that abandons constitutional discipline in favour of brute collection.
A tax system that produces an effective rate of 120 percent does not broaden the base; it destroys the legitimacy of taxation itself. This contradiction is not a matter of semantics. It hits the integrity of constitutional adjudication.
A levy that is not super tax for treaty purposes cannot simultaneously be defended as super tax for constitutional validation—unless the Court undertakes a careful examination of its true legal character in its detailed order. The short order, regrettably, does not address this issue.
Omission to consider the CMA—showing an effective tax burden exceeding 100% of declared income—constitutes a fatal constitutional error. Such taxation is confiscatory by definition and falls outside the permissible contours of fiscal power under the Constitution. This omission squarely attracts the settled principles governing review and clarification of short order, justifying suo moto correction by the FCC or, at the very least, a reasoned clarification in the detailed judgment that even a patent confiscator taxation is permitted under the Constitution.
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Huzaima Bukhari & Dr. Ikramul Haq, lawyers and partners of Huzaima & Ikram, are Adjunct Faculty at Lahore University of Management Sciences (LUMS), members Advisory Board and Visiting Senior Fellows of Pakistan Institute of Development Economics (PIDE). Abdul Rauf Shakoori is a corporate lawyer based in the USA and an expert in ‘White Collar Crimes and Sanctions Compliance’. They have coauthored a book, Pakistan Tackling FATF: Challenges and Solutions