Constitution and tax codes — II

Justice Ch. Ijaz Ahmad in his separate note in the CIT v Eli Lily (Pvt) Ltd (2009) 100 Tax 81 (S.C. Pak) made the following remarkable comments that should be read by all:

“6. The procedure for enacting laws is prescribed under the Constitution e.g., deliberations and the recommendations of the committees, the proceedings of the drafting committee and the speech of mover at the time of introducing the draft along with the report of these committees or all valuable material. The objectives of the Assembly, the manner in which they meet any criticism, the resultant decisions taken thereon, amendments proposed, speeches in favour or against them and their ultimate adoption or rejection will be helpful in throwing light on the particular matter in issue. Importance of deliberation is depicted from the proceedings of Legislative Council. The same are as under:—

“On 14th March, 1919 Founder of Pakistan participated in the proceedings of Legislative Council qua bill relating to criminal law (Emergency Powers) Bill. The relevant paras are reproduced hereunder:—

(On March 14, 1919 Part-II of the Bill was taken up for consideration. Mr. J.V. Patel moved for its deletion. Sir Verney Lovett, Mr. P.J. Fagan and Sir James Douboulay opposed the motion. Mr. M.A. Jinnah in his speech strongly opposed this part of the Bill).

The Honourable Mr. M.A. Jinnah. —-My Lord, this part of title Bill is, as I said on the very first occasion, to me abhorrent and shocking and on that occasion, my Lord, I stated my reasons for it. I would not really have spoken in the Council on this motion of the Honourable Mr. Patel more than by merely saying that I am strongly opposed to this part of the Bill, and I would have done that, my Lord, for this reason, that I really feel that I cannot even trust myself to discuss this part lest I gave vent to my feelings and my opinion, which I honestly say to this Council I cannot possibly express in words, namely, my repugnance for this part of the Bill. But it is the first time that the Government side have tried to meet the real point in this bill, and that point having been made, I venture to make a few observations. The Honourable Sir Verney Lovett quoted me, but only portion of my reasons for opposing this Part-II. Therefore, as he has quoted me, he does not quite correctly represent my position or the grounds of my position. But I will meet his point. And the point which he endeavoured to make was that there is real danger, and that being so, are we, as a Government, not entitled to enact this measure into law? Now, my Lord, that is the sole question which the Council has got to decide. If I may quote an authority and I am quoting Blackstone who has been quoted by Lord Shaw (I am not quoting this as a judgment, but I merely as a quotation from Blackstone and for convenience sake, I am quoting it from his judgment). This is what he says—

Blackstone is quite clear upon the parties of the Constitution. He searchingly treats the case of both of liberty and life as tests both and equally of one and the same principle-the very principle, which is under scrutiny in the present case. To bereave a man of life or by violence to confiscate his estate without accusation or trial would be so gross and notorious an act of deposition as must at one convey the alarm of tyranny throughout the whole kingdom, but confinement of the person, by secretly hurrying him to jail where his sufferings are unknown or forgotten, is a less public and less striking and, therefore, a more dangerous engine of arbitrary government.”

The Honourable Mr. M.A. Jinnah. —-”My Lord, I will only quote the words of a very great authority before I say anything more. In a very famous case, which is known as Deaniel’s case, one of the greatest jurists and lawyers, laid down three propositions:

The first proposition is that no man can be imprisoned upon the will and pleasure of any, but a bondman or a villain. The second proposition: If a freeman of England might be imprisoned at the will and pleasure of the king, or by his commandant, he were in worse case even than a villain.

The third proposition: A freeman imprisoned without cause is civilly dead.”

“My Lord, the provision of Part-III of this Bill will bring about this result. First, the selection of the victim will be left to the plenary discretion of the bureaucracy; secondly, my Lord, it means the negation of public safety and defence; and thirdly, my Lord, I say that it is poison to the Commonwealth. My Lord, to quote the words of Lord Shaw in that famous judgment to which I have referred, this is what he says:—

In the exercise of power, that the Government have the .plainest teachings of history and the dictates of justice demand that, on the one hand, Government power, and on the other hand, individual rights, these two shall face each other as party and party.

....The fundamental principles of justice have been uprooted and the Constitutional rights of the people have been violated at a time when there is no real danger to the State by an over-fretful and incompetent bureaucracy which is neither responsible to the people nor in touch with real public opinion and their sole plea is that the powers when they are assumed will not be abused.

“I, therefore, as a protest against the passing of the Bill and the manner in which it was passed tender my resignation as a member of Imperial Legislative Council for I feel, that under the prevailing conditions I can be of no use to my people in the Council nor consistently with one’s self respect is cooperation possible with a Government that shows such utter disregard for the opinion of the representatives of the people in the Council chamber, and for the feelings and sentiments of the people outside.

“In my opinion, a Government that passes or sanctions such a law in times of peace forfeits its claim to be called a civilized Government and I still hope that the Secretary of State for India, Mr. Montagu, will advise His Majesty to signify his disallowance to this Black Act.”

1. Hon’ble Chief Justice has highlighted the history of income tax laws which explicates adoption of pre-independence Income Tax Act, 1922 through the Independence Act, 1947 which remained in the field ‘till 1979, while the same was repealed through Income Tax Ordinance, 1979 which was also repealed through Income Tax Ordinance; 2001. Since the creation of Pakistan we have not been able to frame any Income Tax Act duly debated in the assembly. Both the Ordinances were promulgated during the Martial Law Regimes otherwise the Constitution has prescribed a four-month life of an Ordinance in case the Ordinance is not be placed before the Assembly and it shall be enacted as an Act then the Ordinance will automatically cease to exist. This aspect also reveals that the Constitution has cast duty upon the legislative body to frame the laws within the parameters prescribed under the scheme of the Constitution.

2. In view of what has been discussed above I wish that the law-making body shall frame the laws after deliberations which is an additional duty cast upon the law making body in terms of the Article 2-A of the Constitution. The same is in accordance with the injunctions of Islam and the Doctrine of expectation of consultations as law laid down in the following judgments:—

   (i) The R.V. Secretary of State for Transport’s case (1985) 3 All ER 300 and

(ii) Re Liverpool Taxi Owners’ Association’s case (1972) 2 All ER 589.

1. The aforesaid principle is in consonance with the norms of democracy. The meaning of Democracy from the different Text Books is as follows: —-

2. Black’s Law Dictionary Revised Fourth Edition

That form of government in which the sovereign power resides in and is exercised by the whole body of free citizens, as distinguished from a monarchy, aristocracy, or oligarchy. According to the theory of a pure democracy, every citizen should participate directly in the business of governing, and the legislative assembly should comprise the whole people.

1. International Encyclopaedia of the Social Sciences Volumes. 3 and 4

Democracy is, to begin with a principle of legitimacy.

1. Webster Comprehensive Dictionary Encyclopaedic Edition

A theory of government which, in its purest form, holds that the state should be controlled by all the people, each sharing equally in privileges, duties and responsibilities and each participating in person in the government.

1. The World Book Dictionary Volume 1

a government that is run by the people who live under it. In a democracy the people rule either directly through meetings that all may attend such as the town meetings in New England, or indirectly through the election of certain representatives to attend to the business of running government. Democracy means the community’s governing through its representatives for its own benefit.—to be continued tomorrow

[Bold are by us to emphasise]

FBR’s Letter C.No.4(72)IT-Budget/2015-6255-R, is in utter violation of the Constitution as it is encroaching the domain of Legislature. It says it is “currently engaged in the formulation of proposals for the Finance Bill 2021”. Under what authority of law FBR is doing this?

To benefit from the collective wisdom of all the stakeholders is not their job but that of Parliament as elaborated in CIT v Eli Lily (Pvt) Ltd (2009) 100 Tax 81 (S.C. Pak) cited above.

Para 2 of the FBR’s letter says:

1. Your input/suggestions in the following policy areas shall be highly appreciated:-

(i) Broadening of tax base for a wider participation in revenue generation efforts;

(ii) Taxation of real Income on progressive basis;

(iii) Phasing out of tax concessions and exemptions;

(iv) Removal of tax distortions and anomalies;

(v) Facilitation of taxpayers and ease of doing business;

(vi) Promoting equity in taxation by introducing measures where incidence of tax is higher on affluent classes. The areas identified above are just illustrative and not exhaustive.

The areas identified above are just illustrative and not exhaustive”.

Tax system is one of the fundamental elements of a constitutional democracy. The important questions such as who is to be taxed, how much and for what purposes, are essentially political questions. These kinds of questions are always resolved through a political process. How tax obligations are to be imposed, administered and enforced are constitutional questions. The imposition, administration and enforcement of taxes raise vital issues about the rule of law, proper division of powers, and the role of judiciary and so on. How does FBR decide these issues and seek proposals from stakeholders?

In CIT v Eli Lily (Pvt) Ltd (2009) 100 Tax 81 (S.C. Pak), Justice Ch. Ijaz Ahmad in Para 3 of his note held as under:

Taxing laws in particular must be framed in such a manner that people of Pakistan themselves voluntarily pay the taxes encouragingly and honestly. Such a motivation can only be infused among the people by eliminating the fear of being exploited by the machinery and income tax authorities. Such motivation will encourage our people to join the list of taxpaying nations consequently stabilizing the financial position of the state helping Nation get rid of IMF and World Bank. Fixing upper and lower tax limits for all occupants, industrialists and professionals other than salaried people will help inculcate a sense of responsibility and an encouragement among the people. Having achieved the maximum tax limit, the rigours of law should not touch the assessees. Once this legal technique is adopted, every person shall try his level best to reach the maximum level rather than avoiding paying the tax. This formula will also eradicate social evils of concealing, lying and erroneously submitting income tax returns resultantly providing a better and stronger social system.....”

[Bold and underlined by us to emphasise]

The process of seeking tax proposals by FBR and framing Finance Bill is in violation of Article 77 read with Article 162 of the Constitution as explained by the Supreme Court of Pakistan in Engineer Iqbal Zafar Jhagra and Senator Rukhsana Zuberi v. Federation of Pakistan and Others (2013) 108 TAX 1 (S.C.Pak.) as under:

“Parliament/Legislature alone and not the Government/Executive is empowered to levy tax. As far as delegation of such powers to the Government/Executive is concerned, the same is for the purpose of implementation of such laws, which is to be done by framing rules, or issuing notifications or guidelines, depending upon case to case, as we have come across some of the cases noted hereinabove. But in no case, authority to levy tax for the Federation is to be delegated to the Government/Executive. Therefore, arguments so raised by learned counsel have no force and the same are repelled hereby.”

[Bold are by us for emphasis]

The principle of “no taxation without representation”, embodied in Article 77 read with Article 162 of the Constitution, has been perpetually and flagrantly violated in Pakistan—a lamentable act that remains unnoticed at all levels. The prime culprits are members of parliaments who have been delegating their legislative power of levying taxes to the federal government (through FBR). This is in utter violation of Constitution and the decisions of the Supreme Court cited above.

Authority to issue Statutory Regulatory Orders (SROs) for extending any kind of exemption or concession in respect of any tax is gross violation of Article 162 of the Constitution which says:

“162. Prior sanction of President required to Bills affecting taxation in which Provinces are interested: – No Bill or amendment which imposes or varies a tax or duty the whole or part of the net proceeds whereof is assigned to any Province, or which varies the meaning of the expression “agricultural income” as defined for the purposes of the enactments relating to income-tax, or which affects the principles on which under any of the foregoing provisions of this Chapter, moneys are or may be distributable to Provinces, shall be introduced or moved in the National Assembly except with the previous sanction of the President.”

The delegated power to an executive authority to frame laws or issue SROs is in utter violation of Article 162 as Parliament itself is not authorised to consider any Bill or amendment that imposes or varies a tax or duty, the whole or part of the net proceeds whereof is assigned to any province, unless the same is first approved by the President. Exercise of delegated powers by FBR to vary a tax or duty through SRO is a blatant violation of Article 162 which has never been challenged and even no suo moto action is taken by the apex court that is to interpret and enforce the Constitution—this confirms our intellectual bankruptcy in understanding and implementing the supreme law of the land.

Enforcement of Rule of Law determines the failure or success of democracy in any society. In the context of tax laws, it means that taxes are imposed through parliamentary process, rather than through administrative discretions (SROs). The language of Article 77 of Constitution is couched in negative starting with the word “no”. It excludes all others to levy any tax. It shall and can only be levied for the purposes of the Federation and that too by or under the authority of the Act of Parliament.

In the past many FBR’s stalwarts [retired Member Policy, Dr. Muhammad Iqbal et al] have been insisting that words “by or under the authority of Act”, as used in Article 77 of the Constitution, authorise “taxation by delegation” as well which they considered justified doing so through Statutory Regulatory Orders (SROs). However, before the Supreme Court in Messers Mustafa Impex, Karachi v Government of Pakistan (2016) 114 Tax 241 (S.C Pak.), Additional Attorney General submitted”

“......the levy and exemption of tax is the function of Parliament under Article 77 of the Constitution and…… power of exemption if given to the executive per se, would amount to the negation of the doctrine of parliamentary supremacy and the doctrine of separation of powers”.

The above submission was against the view of FBR and was confirmed by the Apex Court. Irritated by the judgement of the Honourable Supreme Court, the tax babus sitting in FBR, who always hoodwinked the Finance Minister Ishaq Dar or he himself was party to such unconstitutional measures, inserted amendments through Finance Act 2017 in Customs Act, 1969 [section 221A], Sales Tax Act, 1990 [section 74A], Income Tax Ordinance, 2001 [section 241] and Federal Excise Act, 2005 [section 43A] to nullify the judgement of Supreme Court in Messers Mustafa Impex, Karachi v Government of Pakistan (2016) 114 Tax 241 (S.C Pak.). The text of all these amendments is almost the same: “All notifications and orders issued and notified in exercise of the powers conferred upon the Federal Government, before the commencement of Finance Act, 2017, shall be deemed to have been validly issued and notified in exercise of those powers, notwithstanding anything contained in any judgment of the High Court or Supreme Court”. One wonders what kind of wizards FBR and Ministry of Law had approved/vetted these amendments. Article 77 of the Constitution, as enunciated by Supreme Court, could not be bypassed though such amendments in subordinate laws? These, in fact, amounted to contempt of court. The then Law Minister and Attorney General of Pakistan, both seasoned lawyers, should have advised the then Finance Minister to withdraw them as the only remedy was a constitutional amendment and not mere insertion of validation clauses in subordinate laws but they failed to do so.

Unfortunately, the then Prime Minister and the Finance Minister have been violating the command of supreme law of the land and dictum of Supreme Court with impunity by levying and varying tax rates through Statutory Regulatory Orders (SROs). The worst example was SRO 408(I)/2017 dated May 31, 2017 through which against standard rate of 17% under Sales Tax Act, 1990, high speed diesel was subjected to rate of 34.5%. The coalition Government of Pakistan Tehreek-i-Insaf (PTI) since inception has also been levying higher taxes/levies on petroleum products through SROs. It is high time that present Advocate General and Federal Minister of Law should advise the PTI Government to stop this unconstitutional practice.

The landmark judgement by the Supreme Court [Messers Mustafa Impex, Karachi v Government of Pakistan (2016) 114 Tax 241 (S.C Pak.)] in unequivocal and unambiguous terms has provided that power of levying taxes (which includes exemption, waiver and change in tax rates etc) under Article 77 of the Constitution is the sole prerogative of the Parliament and it cannot be delegated to any executive authority.

It is shocking that after judgement of Supreme Court in Messers Mustafa Impex, Karachi v Government of Pakistan (2016) 114 Tax 241 (S.C Pak.) and Engineer Iqbal Zafar Jhagra and Senator Rukhsana Zuberi v Federation of Pakistan and Others [(2013) 108 TAX 1 (S.C. Pak)], successive governments, including the incumbent, headed by Prime Minister, Imran Khan, have been resorting to imposing new taxes or varying the rate of taxes through SROs violating not only Article 77 but also openly defying Article 189 of the Constitution. They are lucky that this aspect has neither been considered by the Apex Court suo muto nor has any counsel representing the parties in various tax disputes, highlighted it for seeking contempt proceedings against the contemnors.

Thus delegation of legislative power to the executive to vary a tax or duty renders the entire tax system unconstitutional. The so-called wizards sitting in FBR have been playing havoc with tax laws by issuing infamous SROs and administrative instructions—granting exemptions or modifying taxes imposed by the parliament or even levying taxes under the garb of rule-making powers.

Another blatant violation of Constitution remains unnoticed is raising non-tax revenue through maximum imposition of petroleum levy (PL) of Rs. 30 per litre as it remains with the Federal Government, whereas any rise in general sales tax (GST) has to be shared with the provinces as per prevalent National Finance Commission (NFC) Award giving them 57.5% of proceeds.

The Finance Act, 2018 substituted Fifth Schedule to the Petroleum Products (Petroleum Levy) Ordinance, 1961 authorising maximum imposition at the rate of Rs. 30 per litre on High Speed Diesel Oil, Motor Gasoline, Superior Kerosene Oil, Light Diesel Oil, High Octane Blending Component and E-10 Gasoline. As regards Liquefied Petroleum Gas (produced/extracted in Pakistan), the maximum levy can be Rs. 20,000 per metric ton. After this amendment, the Government needs not go to Parliament and can raise the PL anytime while remaining within the maximum limit.

Since PL is non-tax item, any amendment in Petroleum Products (Petroleum Levy) Ordinance, 1961 could not have been made through Money Bill. The law passed in 2018 by then National Assembly was thus unconstitutional. In 2011, amendments were made in Petroleum Products (Petroleum Levy) Ordinance, 1961 through Petroleum Products (Petroleum Levy) Amendment Act, 2011, which was passed by both National Assembly and Senate as per the Constitution. It can be seen at the website of Senate of Pakistan.

The substitution of Fifth Schedule to the Petroleum Products (Petroleum Levy) Ordinance, 1961 through Finance Act 2018, passed by National Assembly on May 18, 2018, bypassing the Senate was a flagrant violation of the Constitution. Now, it is being used by the PTI Government that is continuation of violation of supreme law of the land by the National Assembly during the Government of Pakistan Muslim League (Nawaz). It was explained by the Supreme Court of Pakistan in Workers Welfare Funds m/o Human Resources Development, Islamabad through Secretary and others v East Pakistan Chrome Tannery (Pvt.) Ltd through its GM (Finance), Lahore etc. and others [(2016) 114 TAX 385 (S.C. Pak.)] as under:

“We may develop this point further; although Article 73(3)(a) of the Constitution states that a Bill shall not be a Money Bill if it provides for the imposition or alteration of a fee or charge for any service rendered, this does not mean that if a particular levy/contribution does not fall within Article 73(2) it must necessarily fall within Article 73(3). Sub-articles (2) and (3) are not mutually exclusive. There may very well be certain levies/contributions that do not fall within the purview of Article 73(3) but still do not qualify the test of Article 73(2) and therefore cannot be introduced by way of a Money Bill, and instead have to follow the regular legislative procedure.

The above decision of the Supreme Court approved the judgement of Lahore High Court reported as 2011 PTD 2643 holding as under:

“The special legislative procedure is, therefore, an exception and must operate in its restricted scope. Being a special procedure it also has to be construed strictly as it is a deviation from the normal legislative process under the Constitution. Integrity of a money bill must be jealously guarded and matters falling outside the purview of Articles 73(2)(a) to (g) of the Constitution should not be permitted to stealthily crawl into a money bill (at times due to political sophistry of the Government in power) and adulterate its sanctity”.

At the time of passage of Finance Act, 2018, the above judgement of Supreme Court was in the field but nobody in the National Assembly, including members of PTI raised the issue as to how amendment in Petroleum Products (Petroleum Levy) Ordinance, 1961 could be made through Money Bill.

It is cardinal principle of law that if foundation of any law is unlawful then superstructure automatically collapses. Since the very amendment in Petroleum Products (Petroleum Levy) Ordinance, 1961 as part of Money Bill was unconstitutional, all actions taken thereunder are untenable in law. If Opposition is sincere, it must go to Supreme Court against unconstitutional action of the PTI Government. It proves that in the past they passed laws in utter violation of Constitution and now their protests/rallies/processions under the platform of Pakistan Democratic Alliance (PDM) is nothing but mere lip-service. The Supreme Court may also take suo muto action on this issue for violation of Constitution.

FBR is merely a tax collection body and nothing else. It should first of all take all those legislators to task who are violating the command of Article 5(2) of the Constitution to pay their taxes diligently. Majority of the legislators, who are under oath to safeguard the Constitution, are the worst violators by not filing tax returns or declaring laughable incomes but accumulating assets worth billions of rupees (Restructuring the tax system—III, Business Recorder, January 24, 2020).

Pakistan is a unique country where the legislators and administrators openly violate the Constitution and even well-educated members of civil society and human right activists ask the courts to take suo muto action or lawyers to file pro bono petitions but keep on voting these violators in power. They never even bother to sue the state functionaries for their unlawful acts or not fulfilling the obligation imposed by laws! This is called “collective apathy” or “learned helplessness’.

(Concluded)

(The writers, lawyers and partners in Huzaima, Ikram & Ijaz, are Adjunct Faculty at Lahore University of Management Sciences (LUMS))

Copyright Business Recorder, 2021