How is income for super tax worked out, and are brought-forward losses and depreciation deducted?

Super tax is not charged on taxable income. Section 4C(2) of the Income Tax Ordinance, 2001 sets up its own measure of “income”, and the main practical difference is that losses and depreciation carried forward from earlier years do not reduce it. A company that pays little normal tax because of old losses can still cross a super tax threshold. The text below is the Ordinance as amended to 30 June 2026.

What does the law say?

Section 4C(2) says that, for super tax, “income” is the sum of four parts:

1. Clause (i): profit on debt, dividend, capital gains, brokerage and commission.
2. Clause (ii): taxable income under section 9, other than brought forward depreciation and brought forward business losses, excluding the amounts already counted in clause (i).
3. Clause (iii): imputable income as defined in clause (28A) of section 2, excluding amounts in clause (i).
4. Clause (iv): income computed under the Fourth, Fifth, Seventh and Eighth Schedules, other than brought forward depreciation, brought forward amortization and brought forward business losses.

The Division IIB rate is then applied to this total.

What does each part mean?

Clause (i) pulls in investment and commission income whether or not it is taxed separately or as a final tax elsewhere. A company with large dividend or bank profit income counts that income for super tax.

Clause (ii) starts from the company’s taxable income for the year but ignores the set-off of brought-forward items. For normal tax, section 57 allows a business loss to be carried forward and set off for up to six tax years after the year the loss was first computed, and section 57(4) carries forward unabsorbed depreciation and similar deductions. Those carried-forward amounts are simply left out when the super tax base is built.

Clause (iii) covers income that has suffered a final tax. Clause (28A) of section 2 defines imputable income as “the income which would have resulted in the same tax, had this amount not been subject to final tax”. In other words, the final tax paid is converted back into the income that would produce it, and that figure goes into the base. Clause (iii) does not itself say which rate is used for that back calculation.

Clause (iv) does the same for income computed under the special Schedules, and for these it also excludes brought-forward amortisation.

Worked example (illustrative figures)

Chenab Steel Mills Limited, Lahore, is an ordinary company (row 4 of Division IIB, threshold Rs. 500 million). For the tax year:

Item	Amount
Business income for the year after current-year deductions, excluding the items below	Rs. 700,000,000
Profit on debt from bank deposits	Rs. 40,000,000
Dividends received	Rs. 30,000,000
Business loss brought forward from an earlier year	Rs. 150,000,000
Unabsorbed depreciation brought forward	Rs. 60,000,000

Normal tax base. Setting off the brought-forward items: Rs. 700,000,000 - Rs. 150,000,000 - Rs. 60,000,000 = Rs. 490,000,000. (Under section 57(4), unabsorbed depreciation is set off against fifty percent of the balance income after the loss: 50% of Rs. 550,000,000 is Rs. 275,000,000, which is more than Rs. 60,000,000, so the whole amount is set off.)

Super tax base under section 4C(2):

1. Clause (i): Rs. 40,000,000 + Rs. 30,000,000 = Rs. 70,000,000.
2. Clause (ii): Rs. 700,000,000, with no deduction for the Rs. 150,000,000 loss or the Rs. 60,000,000 depreciation.
3. Clauses (iii) and (iv): nil in this example.
4. Total income for super tax: Rs. 70,000,000 + Rs. 700,000,000 = Rs. 770,000,000.

Super tax. Rs. 770,000,000 exceeds Rs. 500,000,000, so row 4 applies: 8% x Rs. 770,000,000 = Rs. 61,600,000.

What the add-back cost. Had the brought-forward items been deducted, the base would have been Rs. 70,000,000 + Rs. 490,000,000 = Rs. 560,000,000 and super tax Rs. 44,800,000. The difference, Rs. 16,800,000, is 8% of the Rs. 210,000,000 of brought-forward items.

What if …?

What if brought-forward losses bring taxable income to nil? Normal tax may be nil (subject to minimum tax), but clause (ii) still counts the year’s income before those losses. Super tax can be payable in a year with no normal tax.

What if the company made a loss this year? The exclusion is only for brought-forward items. A current-year loss is part of the year’s taxable income computation, and section 4C(2) does not add it back.

What if the company has income taxed under a Schedule, such as the Fifth Schedule? Clause (iv) takes that Schedule income, again without brought-forward depreciation, amortisation or business losses.

Common mistakes

• Using the return’s taxable income figure as the super tax base. That figure is after brought-forward set-offs. Section 4C(2) is not.
• Leaving out dividends and profit on debt because they are taxed separately. Clause (i) includes them.
• Counting investment income twice. Clause (ii) and clause (iii) both exclude amounts already in clause (i).
• Assuming brought-forward losses expire faster for super tax. They are not used for super tax at all; section 57 governs their normal-tax life.

What to check in the official text

Read section 4C(2) in full, clause (28A) of section 2 and section 57 in the official PDF of the Ordinance, then the Division IIB Table for the rate that applies to your row. If you have income under the Fourth, Fifth, Seventh or Eighth Schedule, read the computation rules in that Schedule, because clause (iv) adopts the income those rules produce. Section 4C(6) allows the Board to make rules for super tax; any such rules are not held in this corpus.