The promulgation of any Presidential Ordinance for the imposition of 15 per cent income tax surcharge may raise legal issues for applicability of the surcharge on the already closed and past transactions for Tax Year 2010, as the surcharge would have to cover the entire fiscal for collection of the levy on already deducted tax.
Legal experts told Business Recorder here on Sunday that the federal government was making efforts to levy surcharge on the income of taxpayers already paying taxes or in the tax net by resorting to temporary measures or bypassing the legislature; ie adopting temporary legislative measures thru Presidential Ordinance.
In case Ordinance was promulgated with retrospective effect, how its provisions would again be applicable on the closed and past issues already taxed.
Even if it is imposed for Tax Year 2011, most of the period for Tax Year 2011 has lapsed, which may also result in legal complications. The Federal Board of Revenue (FBR) has to clearly define and explain the rules for the applicability of the income tax surcharge through the Presidential Ordinance, if imposed on the taxpayers.
The FBR should not forget that the Internally Displaced People (IDPs) tax was also not sustained and challenged in the courts. The government had levied the one-time IDP tax at the time the Swat operation was begun in the summer of 2009. If the income tax surcharge would be one time levy ie for one fiscal, than it retrospective or prospective effect would have different implications, they said.
It is now proposed that the surcharge on income of taxpayers in the net will be charged with flood surcharge or surcharge due to flood at the rate of 15 per cent. It is not yet clear that what would be the exact methodology for the applications of the levy on the income tax transactions. Whether it will be on the current tax collection under various withholding provisions or applicable on income of taxpayers filed returns for the Tax Year 2010. The application of the levy for a specific tax year would raise different issues.
Firstly, the fiscal laws are prospective in nature unless specifically and categorically levied with retrospective effect.
Secondly, the Ordinance is a temporary piece of legislation and that to fill in for the non-availability of the Legislature to be in session or existence. If the Ordinance lapsed after 120 days how and what will be the effect of the taxes/surcharge levied there under. Presently, it seems that to cover the shortfall in the revenue collection the Federal Government is going to use all measures including bypassing of the legislature. The Ordinance may be promulgated retrospectively for the imposition of the surcharge.