Does super tax under section 4C apply to a software house whose income is mostly IT exports?

What does section 4C charge?

Section 4C imposes a super tax “for tax year 2022 and onwards” on the income of every person, at the rates in Division IIB of Part I of the First Schedule. For this purpose, section 4C(2) defines “income” as the sum of four items:

1. profit on debt, dividend, capital gains, brokerage and commission;
2. taxable income as computed under the Ordinance, ignoring brought forward depreciation and brought forward business losses, and excluding the item 1 amounts;
3. imputable income as defined in clause (28A) of section 2, excluding the item 1 amounts;
4. income computed under the Fourth, Fifth, Seventh and Eighth Schedules, again ignoring brought forward depreciation, amortization and losses.

Is there a special rule for IT exporters?

Yes, since the Finance Act, 2026. Clause (104B) of Part IV of the Second Schedule reads: “The provisions of section 4C shall not apply to a person if the export proceeds realized for the tax year represent more than eighty percent of his total turnover for the tax year.”

So the first test for a software house is a simple ratio: export proceeds realised in the tax year divided by total turnover for that year. Above 80%, section 4C does not apply to the company at all, whatever its profit. At 80% or below, the rest of this page applies. The clause does not define “total turnover” or say whether it follows the definition used for minimum tax, so the exact base for the ratio is not spelled out in the clause itself.

How is export income treated below the 80% line?

Two provisions pull in different directions.

• Section 169 keeps final-tax income out of taxable income: where tax on export proceeds is final under section 154A(2), “the income shall not be chargeable to tax under any head of income in computing the taxable income of the person”. That income therefore does not enter item 2 above.
• Section 4C(2)(iii) separately adds imputable income. Section 2 defines imputable income, “in relation to an amount subject to final tax”, as “the income which would have resulted in the same tax, had this amount not been subject to final tax”.

The effect is that export income taxed as final is not counted at its full value, but it is counted as a notional income figure derived from the final tax paid. The definition does not say which rate to use when converting the final tax back into income. This page does not settle that point.

What rate applies for tax year 2027?

The Division IIB table, as substituted by the Finance Act, 2026, has four rows:

S. No.	Income under section 4C and person	Rate
1	Banking company, income exceeding Rs. 150 million	10% of the income
2	Income computed under Part I of the Fifth Schedule, exceeding Rs. 150 million (up to the rule 4 limit)	10% of the income
3	Person selling any kind of fertilizer, income exceeding Rs. 150 million	10% of the income
4	Any other person, income exceeding Rs. 500 million	8% of the income

A software house falls in row 4. There is no row for such a person with income at or below Rs. 500 million, so no super tax is charged at that level. The row says “8% of the income”; it does not describe a rate on only the excess over Rs. 500 million.

Worked example (illustrative figures)

A software company in Islamabad, tax year 2027:

• Export proceeds realised: Rs. 1,160,000,000, with section 154A tax treated as final.
• Local turnover: Rs. 900,000,000.
• Total turnover: Rs. 2,060,000,000.

Step 1: the 80% test. Rs. 1,160,000,000 / Rs. 2,060,000,000 = about 56%. That is not more than 80%, so clause (104B) does not help and section 4C applies.

Step 2: income under section 4C(2).

• Profit on debt from bank deposits: Rs. 15,000,000 (item 1).
• Taxable income from the local business, before brought forward losses and depreciation: Rs. 480,000,000 (item 2).
• Imputable income on the export proceeds: assume Rs. 10,000,000 (item 3). This is an invented figure; the Ordinance does not state the conversion rate.

Total: Rs. 15,000,000 + Rs. 480,000,000 + Rs. 10,000,000 = Rs. 505,000,000.

Step 3: rate. Income exceeds Rs. 500 million, so row 4 applies: Rs. 505,000,000 x 8% = Rs. 40,400,000.

Without the imputable income the total would be Rs. 495,000,000, below the row 4 threshold. The example shows why the imputable income item matters for companies near Rs. 500 million.

Variation. If the same company had realised Rs. 3,700,000,000 of export proceeds against Rs. 900,000,000 of local turnover, the ratio would be Rs. 3,700,000,000 / Rs. 4,600,000,000 = about 80.4%. That is more than 80%, so clause (104B) takes the company out of section 4C for that year.

Common mistakes

• Assuming final tax income is invisible for super tax. It is outside taxable income, but section 4C(2)(iii) brings it back in as imputable income.
• Treating the 80% test as permanent. Clause (104B) is tested “for the tax year”, so a company can move in and out of section 4C from year to year.
• Using the old graduated table. Before the Finance Act, 2026, Division IIB had graduated slabs starting above Rs. 150 million. The current table has only the four rows above.
• Deducting brought forward losses. Section 4C(2)(ii) takes taxable income “other than brought forward depreciation and brought forward business losses”.

What to check in the official text

Read section 4C, clause (28A) of section 2, section 169(2), clause (104B) of Part IV of the Second Schedule and the Division IIB table in the Ordinance as amended to 30 June 2026. Confirm that section 154A tax on your proceeds is in fact final for the year, since the conditions in section 154A(2) must be met.