Capital Value Tax (CVT) was levied by the federal government in 1989 on transactions relating to acquisition of immovable properties. This tax, which was effectively a tax on immovable property, was devolved by the 18th Amendment to the provincial governments, and they adopted it. This means that it is the wealth tax on immovable property that is now devolved.
In the Finance Bill 2022, another tax by the name of Capital Value Tax 2022 has been levied on the capital value of domestic and foreign assets. At the outset it is stated that if any immovable property falls within the purview of this tax then it is clearly invalid as the same has been devolved to the provinces under the 18th amendment. The federal government is not empowered to levy taxes on capital value of immovable property under Article 50 of the Federal Legislative List of the Fourth Schedule to the Constitution of Islamic Republic of Pakistan.
This means that the Capital Value Tax 2022 on domestic and foreign assets can only be levied on moveable properties. In this respect another important question that is expected to arise is about the right to tax immovable properties outside Pakistan. The question is whether or not the federal government has the right to tax capital value of any immovable property if that property does not fall within the territory of any province. In my view, the restriction is absolute and unless there is an amendment in the Constitution to this effect the citizens of Pakistan cannot be taxed on the capital value of immovable properties outside Pakistan by the federal government in any manner whatsoever.
The second question is the validity of tax on movable capital assets held by a resident of Pakistan outside Pakistan. There is no restriction on the parliament to levy such capital value tax. Nevertheless under the present circumstances the corollary question is that foreign assets held by persons resident consist of assets of two kinds. These are:
Assets declared under Asset Declaration laws of 2018 and 2019; and
Assets other than those declared under the aforesaid laws.
The asset declaration laws of 2018 and 2019 have a special character. These are the assets which have been claimed by a resident person to be his/ her assets. The Government of Pakistan by way of two special laws provided that if a sum as laid down in these laws is paid by the resident person within a stipulated time then no law of the country including income tax law, wealth tax law, foreign exchange law, corporate law, anti-money laundering law, etc., will apply on those assets. Now with the introduction of Capital Value Tax 2022 the question is whether such assets can now be subjected to the wealth tax in the nature of capital value tax under the Finance Bill 2022. My answer to this question is that no such tax can be levied. In order to understand that rationale it would be better to reproduce from the Indian law through which tax has been levied in that on undisclosed assets. The law states:
(11) “undisclosed asset located outside India” means an asset (including financial interest in any entity) located outside India, held by the assessee in his name or in respect of which he is a beneficial owner, and he has no explanation about the source of investment in such asset or the explanation given by him is in the opinion of the Assessing Officer unsatisfactory;
(12) “undisclosed foreign income and asset” means the total amount of undisclosed income of an assessee from a source located outside India and the value of an undisclosed asset located outside India, referred to in section 4, and computed in the manner laid down in section 5;
CHAPTER II BASIS OF CHARGE.
(1) There shall be charged on every assessee for every assessment year commencing on or after the 1st day of April, 2016, subject to the provisions of this Act, a tax in respect of his total undisclosed foreign income and asset of the previous year at the rate of 30 percent of such undisclosed income and asset:
Provided that an undisclosed asset located outside India shall be charged tax on its value in the previous year in which such asset comes to the notice of the Assessing Officer.
As against this the Pakistan law states as under:
- Charge of tax and default surcharge— (1) The undisclosed assets shall be chargeable to tax and default surcharge at the value mentioned in section 5 and at the rates specified in the Schedule to this Ordinance.
There is a very subtle difference between the laws promulgated in India and Pakistan. In India, the tax under the special law is being collected as effectively being an undisclosed income or asset that can be taxed as income under the income tax law. It means that in India it is a substitute to the income tax that has not been paid. It is not a tax on the value of assets though so calculated. It is effectively undisclosed unexplained income which in Pakistan is taxable under Section 111 of the Income Tax Ordinance 2001.
In Pakistan, the status of the law is completely different; it is in the nature of a one capital value tax and such amount has also been taken away from the charge of income tax that could have been levied on such income. In short, in India, it is a substitute income tax whereas in Pakistan it is a wealth tax. We have not related the same in any manner to the undisclosed unexplained expenditure and assets. I was part of the team that was involved in the original draft preparation for this law under the direction of the Supreme Court of Pakistan and we knew the aforesaid issue and we framed the aforesaid law in this manner as we were aware of harassment that would have been entailed if any provision similar to India’s would have been introduced. We gave the concession intentionally. The matter was decided through deliberations.
Having established the same, the next question is whether the provisions of Foreign Asset Declaration Law 2018 and 2019 which override the Income Tax Ordinance or any subsequent law being Capital Value Tax 2022 introduced by the Finance Bill 2022 shall apply. This is a case of one special law against another general law. This matter has already been well thrashed by the Supreme Court of Pakistan in the case reported as 2017 SCMR 1218 written by Justice Saqib Nisar. In his judgement, Justice Nisar has relied upon the judgement of Justice Afzal Zullah who in my opinion was one of the most learned judges that Pakistan has ever produced. His judgements are comparable to those pronounced in India and the UK. The text of both the judgements are stated as under:
- As regards the case law from the Pakistani jurisdiction, in the judgement reported as State v. Syed Mir Ahmed Shah and another (PLD 1970 Quetta 49) Justice Muhammad Afzal Zullah comprehensively dealt with the issue of implied repeal. He discussed and compared the various features of the Pakistan Criminal Law Amendment Act (XL of 1958) and the Criminal Law (Special Provisions) Ordinance (II of 1968) and concluded that for an accused person the mode of trial under the Act is far more beneficial than that under the Ordinance, that both the statutes are inconsistent with each other and clearly exclude the application of the other. He enunciated the accepted general principles for the avoidance of conflict between different statutes as under:-
(i) If the provisions of a later Act are so inconsistent with those of an earlier Act that both cannot stand together, the earlier stands are impliedly repealed by the latter. This principle is based on the maxim legesposteriorespriorescontrariasabrogant. In other words, it means that the latest expression of the will of the Legislature must prevail. This, of course, is subject to the condition contained in the next principle. That is: if the prior enactment is special and the subsequent enactment is general, the earlier special Legislation will not be, indirectly, repealed, altered or derogated from merely by force of the general words of the later statute, without any indication of a particular strong intention to do so.
(ii) A general law enacted later does not abrogate, by mere implication, an earlier particular or special law which deals with a special object or a special class of objects. This principle is based on the maxim generaliaspecialibus non derogant. But when a general Act is incorporated into a special one, the provisions of the latter would prevail over any of the former with which they are inconsistent. If one statute enacted something in general terms, and afterwards another statute is passed on the same subject, which, although expressed in affirmative language, introduces special conditions and restrictions, the subsequent statute will usually be considered as repealing by implication the former, for affirmative statutes introductive of a new law do imply a negative. However, if a subsequent statute merely creates an exception from the operation of a previous statute, the previous statute is not necessarily repealed.
(iii) When the latter of two general enactments is couched in negative terms or in such affirmative terms which unequivocally involve negative which proves fatal to the earlier enactment, the earlier one is impliedly repealed.
(iv) When the two statutes are expressed in negative terms, they may be affirmative inter se and may not be contradictory to each other; though the effect of both may be that they are negative as regards a third statute at which both of them may have made some inroadsâ€TM. When seen in this light, an apparent conflict of two statutes is found as without any reality. Because they (sic) objects may be different and both may be parallel; and each may be restricted to its own particular subject or locality.
(v) If the co-existence of the two inconsistent statutes would be destructive of the object for which the later was passed, the earlier would be deemed to have been repealed.
(vi) In so far as the Penal Acts are concerned, if a later statute again describes an offence created by a former one, and provides a different punishment, creates a new jurisdiction and remedy and varies the procedure-modifying the manner or changing the forum of trial or appeal, the earlier statute is impliedly repealed by the later unless, of course, both of them can exist in parallel application to different localities, subjects or objects.
(vii) When the words are clear and capable of proper operation, the revocation or alteration of a statute by construction is not permissible. The Legislature is normally not presumed to have intended to keep two contradictory enactments on the statute-book with the intention of repealing the one with the other, without expressing an intention to do so. Such an intention cannot be imputed to the Legislature without some strong reasons and unless it is inevitable. Before adopting the last-mentioned course, it is necessary for the Courts to exhaust all possible and reasonable constructions which offer an escape from repeal by implication.
(viii) All other considerations being equal, if the inconsistency, in spite of applying all general principles of interpretation of statutes, cannot be resolved, a statute more beneficial in remedy or method of taking action will override the statute which is not so beneficial.
The list of the principles on the subject is, by no means, exhaustive. Departures from the above principles have been made in individual cases on the basis of the language used in, and the intention found in respect of, particular statute. The approach in Pakistan on various questions of interpretation of statutes, as compared to India, has usually been pragmatic rather than technical. It was observed in the case of Badrul Haque (PLD 1963 SC 704), that the fundamental rule of interpretation to which all others are subordinate is that a statute is to be expounded according to the intent of those who made it. Therefore, it has to be laid down as a governing rule that whenever there are two possible interpretations, the one destroying the intention of the Legislature in passing the Act should not be adopted. But once the intention having been discovered and words having been given correct meaning and interpretation, the Courts will not refuse to give effect to the Legislation merely because it appears to be harsh, unreasonable or even vindictive; because these attributes of a statute fall within the field of policy of the Legislature and go beyond the ambit of the jurisdiction of the Courts. This, of course, is subject to the question of mala fides of the Legislature in enacting a law and the further question whether or not on that basis the Courts can go into validity of a particular law. That subject is not relevant to the discussion of the present case. Therefore, no comments are made thereon.
The principles laid down in Mir Ahmed Shah’s case (supra) were cited with approval in the judgement of this Court reported as I. G. HQ Frontier Corps and others v. GhulamHussain and others (2004 SCMR 1397). Thus, when there are two special laws both of which contain overriding clauses, in the case of conflict between the two laws generally the statute later in time will prevail over the statute prior in time. However, we are of the opinion that this presumption is not automatic: instead a host of other factors including the object, purpose and policy of both statutes and the legislature’s intention, as expressed by the language employed therein, need to be considered in order to determine which of the two special laws is to prevail.
The Asset Declaration Laws of Pakistan have taxed the foreign assets at a particular rate and the tax paid on those assets is a one-time tax that absolves all past liabilities relating to those assets. The amount collected is not income tax. It is a special tax under a special statute. The question now under consideration is that when such assets have been taxed in a particular manner under a particular statute and they are entitled to be included in the wealth statement as a special case then whether such assets can be taxed again under a statute which is general in nature. In this respect perhaps the judgement of the Supreme Court says that a host of other factors including the object, purpose and policy of both statutes and the legislature’s intention, as expressed by the language employed therein, need to be considered in order to determine which of the two special laws is to prevail. In this judgement both the statutes were special legislations. That was a stronger case. Here there is a comparison between a special law and a general law. On this basis it is my opinion that on account of the special nature of enactment laid down in the asset declaration laws of 2018 and 2019, there cannot be any further tax on the value of assets which were declared under those statutes. The assets emanating from those assets would however be subject to tax under the general provision as are applicable. In this respect I reiterate the differences in the nature of asset declaration laws of India in comparison to Pakistan’s. Indians have taken care of this matter by placing the law within the ambit of the specific regime as is prevalent there. In Pakistan, however, we have intentionally not done so for various reasons. As I stated earlier I was part of the team that was involved in the original draft preparation for this law under the direction of the Supreme Court of Pakistan and we knew the aforesaid issue and the matter was decided through deliberations. In the light of the aforesaid comments it is my view that Capital Value Tax 2022 is not applicable on those foreign assets which form part of the wealth statement on account of their declaration under the asset declaration laws of 2018 and 2019. This is in addition to the fact that immovable assets even outside Pakistan cannot be taxed by the federal government.
Copyright Business Recorder, 2022
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