SUPER tax, an additional tax imposed on the highest earning taxpayers, was recently upheld by the Federal Constitutional Court (FCC). The government’s victory may prove Pyrrhic as it will likely have an adverse effect on economic growth.
Super tax is an additional charge imposed on top of a taxpayer’s normal income tax liability once their income crosses a certain threshold. The idea is simple and politically attractive: the highest income earners should contribute more to help the country through fiscal stress. On paper, it sounded fair. In practice, the reality is not so straightforward. For example, assume a business earns Rs300 million in revenue in a year. And let’s assume that after expenses and other deductions, its taxable profit comes to Rs120m.
Under the normal corporate tax rate of around 29 per cent, the business would pay roughly Rs34.8m in income tax, leaving about Rs85.2m. Because its income falls within the slab attracting 4pc super tax, a further Rs4.8m is taken as super tax, money that could otherwise have gone into expansion, job creation, or new investment.
Recently, after prolonged litigation, the FCC upheld the constitutionality of super tax imposed under Sections 4B and 4C of the Income Tax Ordinance, 2001. With the exception of limited and narrow relief granted to a handful of petroleum companies — primarily due to sovereign guarantees contained in their agreements with the state — the court dismissed all challenges brought by taxpayers.
The message was clear: super tax is lawful and constitutional and arrangements should immediately be made by taxpayers to pay the outstanding liabilities. Of particular concern was the court’s approval of the retrospective application of super tax. Amongst other things, businesses plan their investments, hiring and expansion based on the tax laws in force during a given year.
Yet under this approach, once the year has ended, the law can be changed and applied retrospectively — suddenly imposing a tax that did not exist when those decisions were made. The result is a disruption of business planning, destroying predictability and undermining confidence in the tax system. When taxes can be rewritten after the fact, financial certainty — the backbone of investment — crumbles.
The entities paying the bulk of super tax are already Pakistan’s highest taxpayers — large corporations, banks, telecom companies, manufacturers, and energy firms that collectively contribute a major portion of total tax revenue. These are also the same entities that employ thousands of workers, invest billions in infrastructure, and drive exports and services.
A tax that looks fair in theory may turn harmful in practice.
Imposing repeated additional levies on the same pool of compliant, high-performing taxpayers is a risky strategy. When profitability is penalised year after year, businesses do not simply absorb the cost indefinitely. They react. Some scale down operations. Some delay expansion. Some shift investments abroad. Others restructure in ways that reduce taxable income. In the worst cases, they exit altogether. The result? A shrinking tax base.
In such circumstances, the economy as a whole suffers — including the government’s own revenue streams. A tax that looks fair in theory can become harmful in practice if it undermines the engines of economic growth. Ironically, the very tax meant to extract more revenue from successful businesses can end up reducing long-term collections by discouraging growth and investment.
Pakistan’s tax base remains relatively small compared to the size of its economy and population. At present there are around 8m registered taxpayers which constitute only about 5pc of adults in Pakistan. Pakistan’s real challenge is not squeezing more out of the same limited group of taxpayers. It is broadening the tax base, documenting the econo-my and ensuring that those who currently pay little or nothing are brought into the system.
There is another consequence to the imposition of super tax, which is harder to measure but equally important, ie, investor confidence. When profitable enterprises are repeatedly subjected to new and retrospective tax burdens, the signal sent to both local and foreign investors is one of unpredictability. Businesses thrive on stability.
They can plan around high taxes, but not around constantly shifting fiscal goalposts. Super tax, particularly with its repeated extensions, expansions and retrospective application, risks reinforcing the perception that success in Pakistan is something to be taxed punitively rather than encouraged.
The real issue is no longer legality but economic wisdom. If Pakistan’s most productive businesses slow, relocate or shut down, no tax can replace the jobs, investment and growth that disappear with them. An economy is strengthened by nurturing its base, not by draining its strongest pillars.
The writer is an Islamabad-based lawyer.
Published in Dawn, February 12th, 2026
