Litigation on the levy of Gas Infrastructure Development Cess (GIDC) continues with the Supreme Court recently dismissing the government's review petition against the Peshawar High Court verdict declaring it a fee and therefore its imposition through the Finance Bill illegal as well as making a reference to the pending litigation on the validity of the ordinance in the Lahore and Islamabad High Courts.
All verdicts/judgements in the ongoing litigation against the imposition of GIDC that began soon after the PPP-led coalition government passed the GIDC Act 2011 have been against the levy. On 16th August 2012 the Sindh High Court on a petition filed by over two dozen members of the Towel Manufacturers' Association of Pakistan refrained Sui Southern Gas Company Ltd (SSGCL) and Oil and Gas Regulatory Authority (Ogra) from imposing or collecting GIDC beyond 13 rupees per mmbtu on industrial capacity. On the last day of January in 2013, the Islamabad High Court declared the levy illegal, unconstitutional and in violation of fundamental rights. And the Peshawar High Court in June 2014 declared the GIDC Act unlawful under which the federal government was collecting a levy from all industrial and commercial users of Khyber Pakhtunkhwa.
The PML-N government unwisely and in defiance of democratic norms thought that the solution to the problem would be in promulgating an ordinance. On 25th September 2014, the ordinance was signed by President Mamnoon Hussain and a clause was inserted that over-rode the courts' verdicts namely: "notwithstanding any omission or anything to the contrary contained in the GIDC Act (XXII of 2011) or the rules made thereunder, anything to the contrary contained in any decree, judgements or order of any court the cess levied, charged, collected or realised by the company from gas consumers under the aforesaid act shall be deemed to have been validly levied, charged collected or realised under the provisions of this ordinance." As perhaps should have been expected the ordinance was subsequently challenged in the Islamabad and the Lahore High Courts.
What is baffling is the government's decision to extend the ordinance that had lapsed on 22nd January 2015 for another 120 days - baffling because the ordinance promulgated on 22nd September last year did not succeed in generating a single rupee due to ongoing litigation after July 2014 (the amount in the GIDC kitty was collected from January 2013 to July 2014) and therefore its extension, especially in view of the opposition in the assembly against the extension, is inexplicable; however, the picture clears when one looks at the reviews uploaded by the International Monetary Fund under the 6.64 billion dollar Extended Fund Facility. It has come to light in these documents that the government expressed what is now clear was misplaced optimism in getting a verdict in favour of the levy, an optimism perhaps not totally shared by the Fund staff, which explains why in the sixth review a prior condition (prior to the release of the seventh tranche) stipulates that measures be taken to recover part of the GIDC proceeds focusing on areas where large collective agents have already collected the GIDC in their price with a yield of 0.1 percent of GDP.
Business Recorder notes that the GIDC so far collected in the kitty is around 99 billion rupees while the budgeted cess collection for the current year is 145 billion rupees. One needs to look at this optimism in the context of the 2,810 billion rupees tax revenue budgeted for the ongoing fiscal year which, as is the norm, has been revised downward to 2,691 billion rupees. To date the provisional data indicates 1,768 billion rupees have been collected July-March 2015 with a shortfall of 923 billion rupees till today. Economists as well as senior officials of the Federal Board of Revenue consider it highly unlikely for the government to realise the shortfall in the remaining months of the current year even though there are expectations that the not so kosher practice of advance tax would add a bit more than is legitimate to this year's tax revenue. Thus with the shortfall in tax revenue and the failure to generate the 145 billion rupees budgeted under the GIDC, the shortfall in revenue is going to be considerable with major implications on the development budget. The ideal situation is to make realistic projections of revenue and expenditure; however, it would seem that this is ignored by presenting a picture that is simply not credible. As matters stand today the budgets presented by the government lose their relevance the day after they are presented to the assembly which does not help the government because it raises expectations that it knows it will not be able to meet.