EDITORIAL: The Federal Board of Revenue’s contention that it will fall short of its revenue target of Rs9.42 trillion for the current fiscal year by a massive Rs175 billion as a result of the stay orders that superior courts have imposed on various tax measures passed by parliament is worth a discussion. It must be noted here that these enactments were deemed to have been plagued by substantial legal anomalies that led to the adverse judicial interventions.

One of the more prominent among these measures is Section 7E of the Income Tax Ordinance 2001 on immovable properties, which has encountered obstacles in various courts, with the Balochistan High Court’s (BHC’s) May 31 verdict on it, declaring it ultra vires to the Constitution, being the latest such example.

Under Section 7E, every person holding immovable property is deemed as having derived an income from the property equal to five percent of its fair market value, whether or not the said property was actually generating any income, and then was required to pay a 20 percent tax on this deemed income.

As the BHC’s verdict highlights, the federal government does not have the power to deem mere ownership of immovable property with no economic transaction associated with it as income, and then go on to tax it.

An earlier Lahore High Court (LHC) judgment came to a similar conclusion, stating that if any capital asset held by a person is treated to be deriving an income, this would be confiscatory in nature and in violation of the Constitution’s Article 23. The Peshawar High Court (PHC), meanwhile, has noted that while parliament has the power to impose capital value tax on immoveable property, it does not have the jurisdiction to impose income tax on it.

Another measure facing legal difficulties is the super tax that the government attempted to impose by bringing it within the ambit of the Income Tax Ordinance through Section 4C, which was inserted through the Finance Act 2022. This was initially supposed to be a one-time tax charged at a rate of four percent on incomes over and above a certain threshold.

This was later made a permanent feature and the rate was increased to 10 percent through the Finance Act 2023, and given retrospective impact, and that is where it ran into trouble in the courts, which held that the increased rate cannot be applied in a retrospective manner.

It is evident that applying laws in retrospective mode is against settled principles of law, and the government’s attempts to do so were always going to encounter legal challenges.

However, appeals against court orders have been preferred by the litigants and decisions from the honourable Supreme Court are awaited.

Consequently, revenue amounting to billions of rupees is involved and depending on the outcome of these appeals; it would result in filling of government coffers or if not, then the expected tax amount involved would have to be reduced from the FBR tax collection target.

In fact, it is clear that all the above-mentioned points that the courts have highlighted hold significant heft, and indicate the flawed manner in which these legislative measures were devised by parliament.

The bare minimum one would expect from our lawmakers is to have the sense, knowledge and acumen to ensure that any laws they pass conform to the Constitution and settled legal principles. It is clear, however, that this fundamental aspect of law-making has often gone missing in Pakistan, raising question on the competence of parliamentarians.

This present predicament also highlights the preference of governments to avoid parliamentary debate on proposed laws that can help identify and rectify the flaws inherent in them.

Laws are often bulldozed through parliament on the basis of the government’s numerical majority, without any substantial debate or scrutiny of the various clauses, which is against the spirit of democracy and, as is clear, also has grave consequences for the economy and other matters of national importance. It is about time the government overcame its fear of parliamentary scrutiny to ensure that legislative measures are robust and less likely to encounter legal challenges.

Copyright Business Recorder, 2024