Pakistan: No mandatory formula or single rule for apportioning expenses (Supreme Court decision)
The Supreme Court of Pakistan overturns the Lahore High Court’s decision on expense apportionment.
The Supreme Court of Pakistan in November 2025 issued its decision overturning a decision of the Lahore High Court on expense apportionment.
The court held that taxpayers are not bound to use any single mandatory formula for apportioning expenses, ruling that Section 67(1) of the Income Tax Ordinance, 2001 permits allocation on “any reasonable basis” rather than the rigid approach insisted upon by the Federal Board of Revenue (FBR).
The court clarified that Rule 13 of the Income Tax Rules, 2002 is only illustrative and cannot override the statutory standard, and therefore a taxpayer’s method cannot be rejected merely because it differs from the FBR’s preferred formula.
The court found that its gross profit ratio (GPR) method was reasonable, commercially accurate, and legally permissible, and thus set aside both the FBR’s amended assessment and the earlier Lahore High Court ruling.
The case is: Coca Cola Pakistan Ltd. v. Commissioner Inland Revenue
For more information, contact a KPMG tax professional in Pakistan:
Aamir Younas | aamiryounas@kpmg.com