Default surcharge on super tax: PBC urges FBR to withdraw recovery notices

ISLAMABAD: Pakistan Business Council (PBC) has asked the Federal Board of Revenue (FBR) to immediately withdraw ‘illegal’ notices for recovery of default surcharge on super tax from the corporate sector.

According to a communication of the PBC to the FBR Chairman, the tax department has recently commenced issuing notices for recovery of default surcharge on super tax. This action has caused considerable concern within the business community, as it appears to be inconsistent with established legal principles and could have unintended negative consequences on business confidence and economic activity in Pakistan.

The PBC has submitted the following points for FBR consideration:-

(I) No Failure in Payment: The super tax was not paid earlier based on the order of the High Court. In accordance with this judicial directive, the primary condition for levying default surcharge-namely, failure to pay tax within the prescribed timeline, is not met. Imposing default surcharge in such circumstances is legally and conceptually questionable.

(II) Outstanding Refunds: Large amounts of sales tax and income tax refunds of taxpayers have remained pending for extended periods, often for years.

On these amounts, the FBR has not paid compensation for delayed issuance of refunds. levying surcharge in the context of super tax, while longstanding refunds remain unsettled, risks creating a “heads I win, tails you lose” situation, which is inequitable and could undermine trust in the tax administration.

(III) Impact on Business Confidence: Sudden notices of surcharge, especially in a situation where compliance was dependent upon judicial orders, could adversely affect investor confidence and the overall business environment.

Businesses require certainty and clarity to plan operations and investments.

READ MORE: SHC stays recovery of surcharge on Super Tax

Actions perceived as punitive or inconsistent with established legal and procedural norms may have a chilling effect on economic activity.

In light of the above, the PBC has requested that the FBR to issue directions to immediate withdrawal of notices to collect default surcharge on super tax; and take steps to address longstanding refund issues alongside compliance measures, thereby maintaining confidence in the tax system.

The PBC hoped that the FBR will take our representation into account and provide guidance that balances compliance with fairness and the broader interests of Pakistan’s business community.

When contacted, tax experts told Business Recorder that levy of default surcharge under Section 205 of the Income Tax Ordinance,2001 is contingent upon an enforceable obligation to pay, during the subsistence of interim relief and binding judicial pronouncements, such obligation remained suspended, and consequently, the essential ingredient of “failure to pay” was never triggered. Therefore no default surcharge is leviable on taxpayers under Section 205 of the Income Tax Ordinance,2001.

Therefore, the proposed impugned levy of default surcharge is without lawful authority, contrary to settled principles of law, and all proceeding initiated are liable to be withdrawn.

Taxpayers have met requirements and no default surcharge u/s 205(3) of the Income Tax Ordinance, 2001 would be levied.

Experts stated that the default surcharge has been computed from the date of filing of return; i.e., 30 September, 2022 (statutory due date is of filing of return is 15 December, 2022), without appreciating that super tax on income falling under the Final Tax Regime (FTR), dividend income and profit on debt u/s 7B of the Income Tax Ordinance, 2001 in these cases, was not payable at that time as per constitutional petitions pending before the Sindh High Court and of “Good for Payment” furnished security against the disputed Super Tax liability in the form of “Good for Payment” cheques submitted before the Nazir of the Sindh High Court.

In these cases, there were no failure to pay, as the liability itself was non-existent in view of the Islamabad High Court’s judgment in Fauji Fertilizer case reported as (2023) 128 TAX 141.

Therefore, the essential precondition for levy of default surcharge is not fulfilled.

It is a settled principle that where a matter is under adjudication or subject to judicial relief, the tax demand is treated as suspended or non-existent, tax experts said.

Without prejudice, even if any liability is assumed to arise, the same can only be computed from the date of the order of the Federal Constitutional Court dated 27-01-2026. Computation of default surcharge from an earlier date is legally untenable.

Further, the Lahore High Court in the case reported as 2002 PTD 629 held that where an assessee has declared nil income in the return, but after protracted litigation the income is finally determined, additional tax cannot be levied. The rational of this judgment squarely applies to the present case, where the tax position was taken based on a bona fide interpretation of law supported by a judicial pronouncement referred supra, and any subsequent determination cannot give rise to default surcharge.

In the present cases, the matter relates to a bona fide legal interpretation supported by a High Court judgment; therefore, no element of wilful default exists.

The principles laid down by the Supreme Court and High Courts are binding under Articles 189 and 201 of the Constitution and must be followed by all subordinate authorities, tax experts added.

Copyright Business Recorder, 2026