Dr. Ikramul Haq
The controversy surrounding minimum tax under section 113 and super tax under section 4C of the Income Tax Ordinance, 2001, has now entered a new phase after the decisions in M/s CM Pak Limited v. Federation of Pakistan by Islamabad High Court and Kassim Textile Mills (Pvt.) Ltd v Commissioner Inland Revenue (2025) 132 TAX 383 (Supreme Court by Supreme Court. Both decisions, though dealing with different aspects of minimum tax, reflect a deeper structural problem in Pakistan’s tax jurisprudence: the gradual transformation of income tax into a confiscatory levy detached from actual income.
The issue becomes particularly acute where a taxpayer is in loss, yet is required to pay minimum tax on turnover and, in addition, super tax under section 4C if “income” for the purpose of this section exists, notwithstanding that it stands absorbed by brought-forward losses. Such a result not only distorts the statutory framework of the Income Tax Ordinance, 2001 [“the Ordinance”] but also raises serious constitutional concerns that have not been adequately addressed in recent judicial pronouncements.
The starting point of the discussion is the statutory language of section 113. The provision becomes applicable where no “tax” is payable or the tax payable is less than the minimum tax. The legislature deliberately used the expression “tax payable” rather than “income tax payable under section 4”. This distinction is fundamental because the Ordinance itself defines “tax” in section 2(63): “means any tax imposed under Chapter II, and includes any penalty, fee or other charge or any sum or amount leviable or payable under this Ordinance”. Tax imposed under Chapter II of the Ordinance includes super tax.
Once the statute expressly defines tax to include super tax, there is no legal basis to exclude super tax while determining whether tax payable is less than minimum tax. In the same manner, the adjustment of super tax liability against refund is taxpayer’s right and corresponding duty of the Commissioner under section 170(3)(a) of the Ordinance, which says:
“(3) Where the Commissioner is satisfied that tax has been overpaid, the Commissioner shall–
(a) apply the excess in reduction of any other tax due from the taxpayer under this Ordinance”.
This leads to a straightforward statutory operation. Minimum tax must be compared with total tax payable under the Ordinance, including super tax under section 4C. If super tax already paid exceeds minimum tax, no further tax becomes payable. If it is less, only the shortfall is payable. This interpretation flows directly from the statutory language and does not require any purposive interpretation. It is a plain reading of the law. Since super tax is part of “tax” under the scheme of the Ordinance, it should be adjusted against refund due to a taxpayer.
However, the Islamabad High Court in CM Pak Limited case treated super tax as an independent levy and held that it cannot be adjusted against refund. With respect, this conclusion overlooks the statutory definition of tax and disrupts the coherent scheme of the Ordinance.
Section 4C itself provides that super tax shall be levied, assessed and collected in the same manner as tax under the Ordinance. Once the legislature integrates super tax into the same framework, treating it as an isolated levy becomes legally unsustainable. The effect of the CM Pak case interpretation is that a taxpayer may be in loss, pay substantial super tax, and still be required to pay minimum tax on turnover and, adding insult to injury, is also denied adjustment against bona fide refunds. Such a result, if accepted, would transform income taxation into a confiscatory regime.
The issue becomes even more complex when examined in light of the recent Supreme Court decision in Kassim Textile case. In that case, the Supreme Court held that minimum tax paid in a loss year could not be carried forward where actual tax payable is zero.
The Supreme Court, with respect, adopted a literal interpretation of the phrase “actual tax payable” and concluded that unless there is some positive tax liability, no excess minimum tax arises for carry forward purposes. This interpretation introduces a conceptual anomaly.
Under the Supreme Court’s reasoning, if a taxpayer has even one rupee of tax payable, the excess minimum tax becomes eligible for carry forward. However, if the taxpayer has zero tax payable because of losses, no carry forward is allowed. This creates a sharp, artificial, and outcome-determinative divide between taxpayers, who are otherwise similarly situated. A taxpayer with nominal tax liability receives adjustment relief, while a taxpayer in genuine loss is denied the same benefit.
This interpretation effectively treats zero as a legal bar and introduces a positivity threshold not found in the statutory language. It transforms minimum tax in loss years into a permanent burden rather than a temporary revenue safeguard.
The structure of section 113 suggests that minimum tax was intended as a provisional measure, adjustable when profitability returns. Denying carry forward in loss years undermines this legislative design.
More importantly, the Supreme Court in Kassim Textile left unattended a critical constitutional question. If a taxpayer is required to pay tax when it is in loss and is subsequently denied adjustment when profits arise, the law effectively taxes non-existent income. Such taxation assumes the character of compulsory exaction rather than income tax.
This raises serious constitutional concerns. Taxing a person in loss approximates expropriation and engages the protection of Articles 23 and 24 of the Constitution, which safeguard property rights. It also implicates Article 4, which guarantees due process, Article 18, which protects lawful business activity, and Article 25, which ensures equality before law. These constitutional dimensions were not addressed in Kassim Textile, despite their central importance.
The constitutional problem becomes even more pronounced when minimum tax is combined with super tax under section 4C of the Ordinance. A loss-making entity may pay super tax based on adjusted income and then be required to pay minimum tax on turnover, while being denied carry forward relief. The cumulative effect is taxation without income and without future adjustment. This transforms the levy into a confiscatory fiscal burden.
The Supreme Court in Elahi Cotton Mills Ltd v Federation of Pakistan (PLD 1997 SC 582 upheld turnover-based taxation only within defined constitutional limits and emphasized that such levies must not become confiscatory. The interpretation emerging from Kassim Textile and CM Pak risks crossing those constitutional boundaries.
Another significant concern arises from the treatment of ambiguity. The Supreme Court in Kassim Textile treated the statutory language as unambiguous. However, the existence of conflicting High Court judgments and Tribunal decisions over many years indicates that the provision admitted multiple reasonable interpretations. Where judicial opinion is divided, it becomes difficult to sustain the conclusion that the statutory language admits only one interpretation.
The Finance Act 2021 amendment, which expressly allowed carry forward where no tax is payable, further supports the view that the earlier law required clarification. While the Court treated the amendment as prospective, the interpretative conflict suggests that the earlier language was not as clear as assumed.
The practical consequences of Kassim Textile are also significant. The decision may encourage reopening of settled assessments and revision of past adjustments on the part of Federal Board of Revenue (FBR). This raises concerns about fairness and legal certainty, particularly where taxpayers relied on prevailing judicial interpretations. A similar issue has arisen regarding default surcharge, which FBR is seeking to impose on super tax under section 4C even for periods when the levy itself stood declared ultra vires by High Courts.
When read together, Kassim Textile and CM Pak signal a shift toward increasingly rigid interpretations that prioritize literal reading while overlooking structural coherence and constitutional implications. Such an approach risks converting minimum tax and super tax into instruments of revenue extraction rather than components of a balanced tax system.
The correct approach requires a harmonious interpretation of section 113, section 4C, and section 2(63) of the Ordinance. Minimum tax should operate as a fallback mechanism, not a permanent burden. Super tax, being part of the defined term “tax,” must be considered while determining minimum tax liability and should be adjusted against refunds. Carry forward of minimum tax in loss years should be recognized to preserve the integrity of income-based taxation.
The constitutional framework, statutory definitions, and fiscal logic all point toward this interpretation. Any other reading risks transforming income tax into a confiscatory regime detached from economic reality.
The decisions in Kassim Textile and CM Pak therefore raise important questions for future litigation and judicial reconsideration. These cases highlight the need to restore coherence to Pakistan’s tax jurisprudence and ensure that taxation remains anchored to income, fairness, and constitutional limits.
The debate is far from settled. As litigation continues by way of appeals or review petitions, these constitutional and statutory issues are likely to return before appellate courts, where a more comprehensive examination may provide the clarity that the current jurisprudence lacks.
The structural and constitutional concerns reinforce the argument that minimum tax, when denied adjustment in loss years, transforms from a revenue safeguard into a permanent fiscal burden inconsistent with constitutional protections.
Denial of super tax adjustment against refund by Islamabad High Court in CM Pak, with due deference, is per incuriam, misreading of law as narrated above is evident on the face of the judgment. It also confirms the assumed interpretation of short order of Federal Constitutional Court (FCC) of January 27, 2026 that super tax is not part of income tax liability! The delay in issuance of the detailed order by the Federal Constitutional Court and the recovery rush on the part of FBR are playing havoc with due process of law.
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Dr. Ikramul Haq, Advocate Supreme Court, Adjunct Faculty at Lahore University of Management Sciences (LUMS), member Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE), holds an LLD in tax laws. He was full-time journalist from 1979 to 1984 with Viewpoint and Dawn. He also served Civil Services of Pakistan from 1984 to 1996.