ISLAMABAD: The Federal Constitution Court of Pakistan has issued a short verdict concerning the application of the super tax on Exploration and Production (Eand P) companies, potentially leading to significant financial reversals for these firms. The ruling specifies that tax payable should be calculated in accordance with the Fifth Schedule after reviewing each Petroleum Concession Agreement (PCA) and applicable laws, with no super tax imposed beyond the limits specified in Rule 4 of the Fifth Schedule.

According to JS Global, discussions with listed Eand P companies reveal that the super tax will be aligned with the tax liability thresholds outlined in their PCAs and the Fifth Schedule of the Income Tax Ordinance. This adjustment could lead to reversals in tax calculations, as the existing tax calculations already incorporate PCA and income tax ordinance formulas. This has resulted in differing base tax rates for various listed companies.

For context, Pakistan Petroleum Limited (PPL) reported paying super tax for non-agreement areas, such as income from Bolan Mining Enterprises, in its financial statements for fiscal years 2015 to 2019. A 2015 circular from the Federal Board of Revenue (FBR) indicated that Eand P companies' core income was excluded from super tax calculations, being assessed separately according to the relevant schedules.

Industry sources suggest that the final resolution of tax calculations may take until June 2026, as individual assessments will be conducted with tax authorities for each PCA. Nonetheless, it is anticipated that there could be reversals of a significant portion of previously provided super tax amounts. While the precise impact on reversal income per share remains uncertain, the potential reduction in super tax liability could affect annual earnings by approximately 6 to 15 percent.

Further details are expected to emerge once the court publishes its detailed judgment, shedding more light on the implications for Eand P companies operating under Pakistan's tax regime.

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