PPEPCA warns of legal consequences if super tax rates exceed PCAs’

ISLAMABAD: The Pakistan Petroleum Exploration and Production Companies Association (PPEPCA) has warned that it may seek international legal remedies if the government insists on imposing Super Tax at rates exceeding those stipulated in its members’ statutorily protected Petroleum Concession Agreements (PCAs). In a letter to the Secretary of the Special Investment Facilitation Council (SIFC) Jamil Ahmad Qureshi, PPEPCA Secretary General Ibrar Khan said that despite SIFC’s efforts to promote foreign direct investment (FDI) in Pakistan—particularly in the oil and gas sector—upstream exploration and production (E&P) companies are facing serious jeopardy due to the imposition of Super Tax under Sections 4B and 4C of the Income Tax Ordinance, 2001. He said the Super Tax not only undermines the financial viability of member companies but also weakens Pakistan’s decades-long commitment to attracting foreign investment in the oil and gas sector. Sharing details, the PPEPCA secretary general said that E&P companies had challenged the tax before the Islamabad High Court (Writ Petition No. 4027 of 2022). The court held that Super Tax could only be imposed to the extent that it did not exceed the tax cap prescribed in the Petroleum Concession Agreements. The court further ruled that Section 4C “will not apply to petroleum exploration companies to the extent its application results in taxation exceeding the thresholds stipulated in Rule 4 of the Fifth Schedule.” READ MORE: Super tax case: Rs114bn collected in terms of Sec 4B of IT Ord, FCC told The High Court took into account the critical importance of the sector to the national economy and noted that under Section 3B of the Regulation of Mines and Oil-Fields and Mineral Development (Government Control) Act, 1948, E&P companies were granted a statutory guarantee that tax rates would remain frozen and capped as of the date on which the PCA is executed with the President of Pakistan. The court also recognised that the 1948 Act expressly provides that tax rules applicable at the time of signing a PCA cannot be altered subsequently, and that any later amendments to the Income Tax Ordinance inconsistent with PCA terms would not apply to the concessionaire. According to PPEPCA, the decision was not challenged by the Federation but only by a Commissioner of Inland Revenue through an intra-court appeal in the Islamabad High Court. In an unusual situation, the commissioner is the appellant, while the Federation and the Federal Board of Revenue (FBR) are respondents. These appeals were subsequently taken up—initially by the Constitutional Bench of the Supreme Court—and are now pending before the Federal Constitutional Court. “At this stage, we do not know the outcome of the case. However, we wish to draw SIFC’s attention to the fact that all PCAs contain dispute resolution clauses providing for international arbitration,” PPEPCA said, recalled that in the Reko Diq case, in which Pakistan was ordered to pay USD5.84 billion plus interest, and the Karkey case, where penalties of USD220 million were paid. Both cases, it added, resulted from violations of legal protections and contractual commitments. The association cautioned that if the Federation insists on imposing Super Tax beyond PCA limits, some member companies may invoke these dispute resolution clauses. The potential liability could run into billions of dollars, further straining Pakistan’s already fragile fiscal position, damaging its sovereign credit rating, discouraging future FDI, and undermining its reputation in international capital markets. PPEPCA further stated that Pakistan has taken decisions at the highest level to encourage multinational and foreign companies to develop the country’s oil and mineral resources, a policy with important security implications as well. Any perception that government commitments—backed by statute—can be violated would have a devastating impact on these carefully structured plans. “No international or even local investor will commit billions of dollars to high-risk, long-term upstream projects if foundational fiscal terms can be unilaterally altered,” said Ibrar Khan. “Investors accepted these risks only because of the fiscal stability guaranteed by PCAs. Removing this certainty retrospectively is fundamentally unfair and economically untenable.” He added that SIFC’s mandate to streamline investment facilitation places it in a unique position to help resolve the issue. “Every day this matter remains unaddressed damages the country’s standing and increases the risk of international arbitration. We; therefore request SIFC’s intervention to ensure the government honours its legally binding contractual obligations.” Copyright Business Recorder, 2026