ISLAMABAD: The Supreme Court of Pakistan has held that retrospective tax penalties are unlawful, ruling that sanctions under the Income Tax Ordinance 2001 cannot be applied to assessments that were governed by the repealed law.

The judgment settles a conflict between two earlier rulings on the point, giving tax practitioners and the revenue authority a single, binding position to work from.

The practical effect is significant for taxpayers with legacy assessments still moving through appeal. Penalties calculated under the newer statute cannot be imposed where the underlying assessment was completed under the previous legal regime — a distinction that has generated years of litigation.

For the Federal Board of Revenue, the ruling narrows the scope for penalty recovery in older cases and is likely to require a review of pending demands that rest on the same reasoning.

Tax lawyers say the decision reinforces the broader principle that penal provisions should not operate backwards in time, and expect it to be cited widely in appellate proceedings.