In his book The Law of Taxation [1924] Thomas M. Cooley defined the term 'taxes' in very simple words:
"Taxes are the enforced proportional contribution from persons and property, levied by the state by virtue of the sovereignty for the support of government and for all public needs".
The definition of taxes, often referred to as 'Cooley's definition' has been quoted and indorsed, or approved expressly or otherwise by many courts. While this definition of taxes characterizes them as 'contributions' other definition refer to them as 'imposts', 'charges', 'burdens' or 'exactions'; but these variations in phraseology are of no practical importance.
In continuation of my earlier three articles on the subject of workers' welfare fund this article relates to another levy introduced by the Workers' Profit Participation Ordinance (WPPF), 1968. It is generally termed as WPPF. It is a straight levy of 5% of accounting income. In the following paragraphs, I will discuss whether or not WPPF in the present shape is a deemed share of workers in the income of that company or a tax equal to a certain percentage of income disguised as workers' share. In this connection at the outset I will state that in the present form it is a workers' share in the income of the company and not a tax. However, the manner in which the law and regulations has been designed, that I have reproduced in the following paragraphs, it is another disguised contribution to the state. In the economic sense there is no case for continuation of this levy under the present circumstances in the present form. In short, the tax of a listed company is 29% plus 2% WWF and 5% WPPF. An effective charge is 36%, which is the highest in any developing country. Such high incidence is one of the reasons for non-corporatization of businesses which is an essential ingredient for a private sector economy.
Companies are required to allocate a percentage of income (5%) as being distributable to workers under the WPPF law. There is nothing wrong in this law if there is a social consensus that in every company workers will be given 5% of the income. It can even be more depending upon the economic analysis. Nevertheless, it is to be understood that for the shareholders of the company that a major part of this sum a tax which government extracts in a disguised manner in the name of workers' share in profit. This may be a correct step for economic reasons. Nevertheless, my studies of the comparative economies such as India and others there is no such deemed share of workers. Bangladesh carries the legacy of Pakistan; however, even there this does not exist. It is my personal view that if the cost of doing business is to be reduced then either this contribution be abolished or the charge should be allowed as a 'credit' against tax payment not a charge as expense. Anything else is detrimental to businesses especially to business in the organized sector.
Under the present set-up the amount of workers' share in income is attributed to a trust representing workers and owners. The amount credited in the fund managed by that trust is allocated and paid to workers. There is no problem in this working mechanism. The problem lies in the definition of the terms 'worker' and 'wages' on the basis of which the amount is calculated. Any amount left after such distribution in the manner stated in the law the balance goes to the federal or the provincial governments as WWF. One thing which I have never been able to understand is the reason why the 'balance amount' is to be paid to the government in the form of WWF. This procedure in my view is incorrect, non-coherent, illegal that converts a profit share into a tax for the company. This mechanism needs to be abrogated. It is highly strange that since 1968 this levy is not being examined by any court in the proper context. Companies have accepted this levy as a tax. The worst hit cases are those who earn high profit and pay high wages to their workers. I will explain that in the following paragraphs:
This is the reproduction of Section 4(d) of the Schedule to WPPF Act of 1968.
[(d) Notwithstanding anything contained in this scheme, no worker shall, in any one year, be entitled out of the annual allocation to units exceeding rupees 2 [the amount of three times of the minimum wages for unskilled workers as given in the schedule of Minimum Wages for unskilled Workers Ordinance, 1969 (W.P. Ord. XX of 1969]. Any amount left out of annual allocation after the units have been so allocated shall be transferred to the Fund constituted under section 3 of the Workers Welfare Fund Ordinance, 1971 (XXXIV of 1971). No part of such amount shall be deemed to be included in the asset value of the Fund established under this Act and no individual worker shall have any lien on this amount by virtue of holding any units]
Explanations.- In this paragraph, "average monthly wages" means total wages drawn during the year of account divided by 12, or by the number of months a worker actually worked during a year in respect of which he is entitled to the benefit under the scheme, as the case may be, and "wages" has the same meaning as in clause (vi) of section 2 of the Payment of Wages Act, 1936 (IV of 1936), but does not include any overtime allowance 3 [or bonus], 5. Disbursement of benefits.
Notwithstanding any other comment, this is the worst piece of economic legislation ever made in this country. The most important aspect is the reaction of businesses and their representatives on this matter. It is my view that in many cases the entrepreneur does not understand the intricacies and we accountants take the subject of tax as a law not as subject of economics. This is a totally absurd law which was introduced in 1972 and is in force till to date after 48 years. This proves the point that as a country we do not need tax reforms. We want to 'deform' the businesses by allocating workers' share in profit in the hands of bureaucracy. In very simple words by way of application of this provision in case if wages in a company are reasonable and the company is making substantial profits then it is almost certain that whole of WPPF will be siphoned out 'legally' and compulsorily to WWF without any recourse. It is nothing but a 'tax'. I know for a fact that in an oil exploration entity 100 % of the amount goes to WWF as workers' remuneration are reasonable. My simple question to the executive is whether or not there is any economic or commercial sense to allocate the profit share of workers of one company making profit to a fund WWF which is for workers throughout the country. The concept is wrong, illegal and based on a simple premise of extracting more and more money from the organized sector for the reason that unorganized sector is not contributing enough funds for meeting the uncontrollable expenditure of the state. The ugliest part of the aforesaid legislation are the words underlined especially that 'no individual worker shall have any lien on this amount by virtue of holding any unit'. Notwithstanding anything else this sentence is in itself against the fundamental human rights as laid down in the constitution. A unit holder in WPPF has the right over the funds of WPPF and the same cannot be denied by way of sentence in the Schedule to the Act.
I had been raising this issue for the last 30 years however there are very few supporters for the cause. The question under consideration is whether or not the state is to act as an exploiter. History tells us that societies have been destroyed not by wars and diseases but by wrong and inequitable taxes.
In the light of the matter as discussed above, it is my suggestion that WPPF in the present form should be abrogated. In the present form it is a disguised tax. Based on my observation I can easily say that out of total sum so attributed at even on conservative estimate least 50 % plus ends up as WWF being a pure tax. This is unconstitutional. In case if there is a social and economic need to provide some share to workers then any other mechanism for the same should be designed. In case if there is a desire to continue the law in the present form then the aforesaid underlined provision should be immediately deleted and whole sum is to be made available to the workers of that entity.
To conclude, I am of the opinion that if we analyze the present tax system then it is abundantly clear that the same is totally against the organized sector. There is a clear discrimination against the organized sector. We make laws in such a manner that there is no incentive for corporatization. It is to be clearly understood that a 'body corporate' is an artificial person having perpetuity which is the need for continuation of a business. A body corporate cannot be equated with an individual for many reasons including the concept of interest or usury. In short, it is suggested that as a matter of cost of doing business there should be a review of the present WPPF. Socialism does not mean extortion or extraction of taxes inequitably and wasting them in the hands of bureaucracy.
Copyright Business Recorder, 2021
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