Actus legis nemini facit injurium (A party should not suffer on account of an act or omission by the Court or State functionaries) State V. Asif Adil and others 1997 SCMR 209
The Income Tax Ordinance, 2001, promulgated by a military dictator and made effective from tax year 2003, is a very messy law. Much has been written about its inherent deficiencies, dichotomies, many typographical and syntax errors.
Even the highest court of the country, Supreme Court of Pakistan, has passed strictures directing authorities for taking remedial measures to make it unambiguous, simple and workable for the common people of Pakistan.
Unfortunately, neither the Legislature nor the administrator of this law, Federal Board of Revenue (FBR) has paid any heed to instructions issued by the Supreme Court.
Resultantly, after two decades of its operation this law remains shambolic and reminiscent of a dark era of our history. None of the governments since 2002 has tried to make it an Act of the elected Parliament, the FBR (de facto legislature) created a horrible mess of it. The case study below will testify to it.
The Income Tax Ordinance, 2001 adopted as such the following sub-clause (2) of clause (1B), Part III of the Second Schedule of the repealed Income Tax Ordinance, 1979 as sub-clause (2) of clause(1) of Part III of its Second Schedule at the time of inception:
“In addition to the reduction specified in sub-clause (1), the tax payable by a full time teacher or a researcher, employed in a non-profit education or research institution duly recognised by a Board of Education or a University or the University Grants Commission including government training and research institution, shall be further reduced by an amount equal to 50% of the tax payable after the aforesaid reduction”.
This provision of law, as per sub-clause (3) of clause (1B) of the repealed Income Tax Ordinance,1979, was applicable for the purposes of tax withholding under sub-section (1) of section 50 from the first day of July, 2000 and for the purposes of assessment from assessment year 2001-2002.
On receipt of different queries about this provision of law, FBR in Circular 11 of 2002 of July 23, 2002 opined as under:
“Various queries have been received in the Board regarding admissibility of additional reduction in tax liability as provided in sub-clause (2) of Clause (IB) of Part III of Second Schedule of Income Tax Ordinance, 1979. The queries were responded on case to case basis previously. In order to ensure a uniform treatment of above facility and in suppression of instructions contained in para 6 of CBR Circular No.16 of 2000 dated 3.7.2000 it is hereby clarified that the benefit of additional reduction in tax liability is admissible to a full time teacher or researcher who fulfils the following conditions:–
a. Such teacher or researcher is employed in a non-profit educational or research institution including govt. training or research institution, and
b. Such institution enjoys recognition by a Board of Education or a university or University Grants Commission, as the case may be.
If the institution does not fulfill any of the above conditions then its full time teacher or researcher would not be entitled for the aforesaid benefit.
It is also added that additional reduction in tax liability would be applicable to Salary income only. Tax payable on Income, other than salary, by such taxpayer would not be reduced under this provision”.
This tax reduction, contingent upon various conditions, after tax year 2003 underwent many amendments. Of late, the FBR has unlawfully/unjustifiable deleted it from its web versions for three years (2022 to 2024) that needs appraisal in the light of the following facts:
a. Since inception of Income Tax Ordinance, 2001,this provision exists.
b. In the Finance Act, 2005, it was mentioned as sub-clause as under:
“In sub-clause (2).-
(i) For the figure “50”, the figure “75” shall be substituted; and
(ii) For the words “University Grants Commission” the words “Higher Education Commissioner” shall be substituted”.
c. In its Circular No.1 of 2005 dated 5.7.2005, the FBR, however, mentioned it as clause (2) and explained the amendment as under:
“ENHANCEMENT OF TAX REBATE FOR TEACHERS AND RESEARCHERS [clause (2) of Part III of Second Schedule]
Full time teachers or researchers employed in non-profit education or research institutions including Government training and research institutions duly recognized by a Board of Education or Higher Education Commission enjoyed a special tax rebate of 50% of net tax otherwise payable. Clause (2) of Part III of the Second Schedule has been amended and the special rebate of 50% has been enhanced to 75% effective from the tax year 2005”.
d. The Finance Act, 2006, while substituting this provision again mentioned it as sub-clause (2) as under:
“For sub-clause (2), the following shall be substituted, namely.-
(2) The tax payable by a full time teacher or a researcher, employed in a non-profit education or research institution duly recognized by Higher Education Commission, a Board of Education or a University recognized by the Higher Education Commission, including government training and research institution shall be reduced by an amount equal to 75% of tax payable on his income from salary”.
e. However, in Explanatory Circular No.1 of 2006 dated 1.7.2006, the FBR again mentioned it as clause and not sub-clause as under:
“REBATE FOR TEACHERS AND RESEARCHERS POSTED IN GOVERNMENT INSTITUTIONS
[Second Schedule, Part III, Clause (2)]
Full time teachers or researchers employed in non-profit education or research institutions including Government training and research institution duly recognized by a Board of Education, a University or Higher Education Commission enjoy a special tax rebate of 75%.
Previously, the law provided that Government Training and Research Institutions are also required to be recognized from HEC for such reduction in tax liability. Whereas the ground reality is that Government Training and Research Institutions are invariably not subject to recognition by the HEC or by any University. In order to encourage teachers and researchers posted in such institutions, law has been suitably amended to extend similar tax reduction to them as well”.
f. Through the Finance Act, 2008, clause (1), Part III, Second Schedule, was substituted as under:
(i) For clause (1) the following shall be substituted, namely:-
“(1) Any amount received as –
(a) Flying allowance by pilots, flight engineers, navigators of Pakistan Armed forces, Pakistani Airlines or Civil Aviation Authority, Junior Commissioned Officers or other ranks of Pakistan Armed forces: and
(b) Submarine allowance by the officers of the Pakistan Navy,
Shall be taxed @ 2.5% as a separate block of income”
If rebate to teachers, etc., was covered under sub-clause (2) of clause (1), Part III of the Second Schedule, then after this substitution of clause (1), this should have also been stood deleted! However, the legislative history, as narrated below, shows that it was retained beyond 2008 and until now. The Finance Act, 2013, made an amendment in it as: “in clause (2), for the figure ‘75’ the figure ‘40’ shall be substituted”. The use of word clause (2) by Legislature in 2013 is noteworthy.
g. The Finance Act, 2019 made the following changes in this provision clearly mentioning it as clause (2) of Part III of the Second Schedule, negating the stance by anyone that law was not in existence after the above substitution:
“in Part III,—
(a) in clause (2),—
(i) the words “training and” shall be omitted;
(ii) for the figure “40”, the figure “25” shall be substituted; and
(iii) for the full stop at the end, a colon shall be substituted and thereafter the following new proviso shall be inserted, namely:—
“Provided that this clause shall not apply to teachers of medical profession who derive income from private medical practice or who receive share of consideration received from patients”.
h. Through the Finance Act, 2021, clauses (2), (7) and (8) of Part III of Second Schedule were omitted. However, omitted clause (2) of Part III was different (this duplication occurred due to mess up by FBR) and did not pertain to clause (2) related to tax reduction in the case of teachers, etc., discussed above.
i. The omitted clause (2) by the Finance Act, 2021 was:“(2) The amount of tax payable, in a year in which the rupee is revalued or devalued, by a taxpayer whose profits or gains are computed in accordance with the rules contained in the Fifth Schedule to this Ordinance and who had entered with the Government into an agreement which provides for such reduction, shall be reduced to the amount that would be payable in the absence of the revaluation or devaluation of the rupee.”
j. Though the Finance Act, 2005 and 2006 called it as sub-clause (2), while making amendments, the FBR created confusion by calling it clause (2) in its above cited circulars that were, and still are binding on all officers in terms of section 206(2) of the Income Tax Ordinance, 2001.
k. In Finance Bill, 2024, the provision under debate/consideration was proposed to be omitted. If it was earlier omitted/repealed/deleted, why was it so proposed?
It is clear from above incontrovertible facts that even as on 30.06.2024 and thereafter, this provision remains on the statute book. Thus, the rebate was rightly claimed by the taxpayers and allowed as per law.
It is also pertinent to mention that FBR’s web portal, IRIS, has been allowing this rebate even in the tax year 2024. If it was not on statute book, why was it not deleted from online return filing portal? Since the Finance Act, 2024 did not delete this provision though proposed in the Finance Bill, 2024, the taxpayer rightly claimed the rebate.
The recent attempt of FBR to delete this provision of law by just changing its online versions of Income Tax Ordinance, 2001 since 2022, relevant for tax year 2023 and onward is again a blatant violation of law.
The printed versions of FBR for tax years 2022, 2023 and prior to these, speak otherwise!! These confirm that reduction in rate was available. So, FBR’s claim (per amendments in web versions) that this clause was deleted by Finance Act 2021 is not supported by any evidence and is, undoubtedly, contrary to FBR’s practice of allowing the reduction at its portal in tax year 2024.
The right course now for Parliament and FBR is to provide explicitly in the law through a Finance Act that this rebate was lawfully available till tax year 2024. In case the Legislature’s intention is to withdraw this concession, it can only be done prospectively, i.e., from tax year 2025 by making a clear and unambiguous amendment in law.
To avoid such a mess on the part of FBR in the future, it is suggested that:
a) FBR should issue authentic version of all the laws administered by it with complete legislative history so that whenever a case is taken up by an authority/Court/FTO, the correct position of law for the relevant period is available.
b) While preparing a Finance Bill, utmost care should be taken that provisions are correctly mentioned/cited to avoid any confusion. In the above case, the provision was mentioned as either clause or sub-clause in different years even by Legislature (sic). When this provision was for the very first time amended in 2005, FBR in explanatory circular called it clause, contrary to sub-clause, mentioned in the Finance Act, 2005.
The same was repeated in 2006. One wonders what the trained draftsmen of Ministry of Law were doing, who as per rules of business are bound to vet all laws/amendments proposed, for consideration by National Assembly and/or Senate.
c) While publishing online or printed versions of its laws, FBR should present the same in their proper legal format, as in many places, provisos, etc., are not placed under the relevant sections/provisions, creating confusion as to which portion they relate to. For e.g., in section 113 an independent para has been merged with clause (e) giving the impression that it is relevant only to this clause and does not apply to the entire sub-section (1) thus creating confusion. There are many such errors on the part of FBR in Income Tax Ordinance, 2001 and other laws.
It is pertinent to mention that despite mentioning it time and again, FBR has not taken any step to correct the same as per legal procedure that is first printing corrigendum in the official gazette if error was committed in the law passed by Parliament.
It is time that FBR should put its house in order and immediately take the above measures/steps. The Standing Committees of Parliament (Senate and National Assembly) on Finance & Revenue should also investigate the matter to avoid such lapses in the future. Needless to say, it is a well-established principle of law that no one should suffer for any wrongdoing of any state functionary, even that of any court or legislature!
Copyright Business Recorder, 2024
The writer is a lawyer and author of many books, and Adjunct Faculty at Lahore University of management Sciences (LUMS), member of Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE). She can be reached at [email protected]
The writer is a lawyer and author of many books, and Adjunct Faculty at Lahore University of management Sciences (LUMS) as well as member of Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE). He can be reached at [email protected]
The writer is a US-based corporate lawyer, and specialises in white collar crimes and sanctions compliance. He has written several books on corporate and taxation laws of Pakistan. He can be reached at [email protected]
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