Ex­ces­sive tax­a­tion

The Pak Banker - - 4EDITORIAL - Dr Ikra­mul Haq

THE fed­eral govern­ment has im­posed fixed sales tax per litre on all pe­tro­leum prod­ucts with ef­fect from Fe­bru­ary 1, 2016, vi­o­lat­ing the statu­tory re­quire­ment of charg­ing sales tax on per­cent­age ba­sis un­der sec­tion 3 of the Sales Tax Act, 1990.

The fixed sales tax levied through a Statu­tory Reg­u­la­tory Or­der even oth­er­wise of­fends Ar­ti­cle 77 of the con­sti­tu­tion of Pak­istan. Ac­cord­ing to SRO 57(I)/2016 dated Jan­uary 30, 2016, the sales tax on mo­tor spirit, ex­clud­ing HOBC, is fixed at Rs14.48 per litre, on HOBC Rs18.57 per litre, on high speed diesel at Rs29.57 per litre, on light diesel Rs9.63 per litre and on kerosene at Rs10.40 per litre. SRO 57(I)/2016 is is­sued un­der sec­tion 3(2)(b) of the Sales Tax Act, 1990 which does not man­date fixed sales tax.

By im­pos­ing a fixed sales tax on pe­tro­leum prod­ucts, the govern­ment has de­nied the cit­i­zens the ac­tual ben­e­fit of the in­ter­na­tional re­duc­tion of POL prices. The aim be­hind this un­law­ful tax­a­tion is to ex­tort max­i­mum tax from the con­sumers. The re­duc­tion of prices by just Rs5 of all pe­tro­leum prod­ucts is to­tally un­jus­ti­fied. Col­lec­tion of a fixed amount of Rs29.57 on high speed diesel oil will fetch higher taxes as this is the largest sell­ing prod­uct.

The ex­or­bi­tant tax­a­tion of pe­tro­leum prod­ucts through SRO 57(I)/2016, with­out the ap­proval of par­lia­ment and in ut­ter dis­re­gard of the judge­ment of the Supreme Court in En­gi­neer Iqbal Za­far Jha­gra and Sen­a­tor Rukhsana Zu­beri v Fed­er­a­tion of Pak­istan and Oth­ers (2013) 108 TAX 1 (S.C. Pak), is highly lam­en­ta­ble. In this judge­ment, the apex court held:

"It is [a] well set­tled propo­si­tion that levy of tax for the pur­pose of the fed­er­a­tion is not per­mis­si­ble ex­cept by or un­der the au­thor­ity of Act of Ma­jlis-e-Shoora (par­lia­ment). Ref­er­ence in this be­half may be made to the case of Cyanamid Pak­istan Ltd v Col­lec­tor of Cus­toms (PLD 2005 SC 495), wherein it has also been held that such leg­isla­tive pow­ers can­not be del­e­gated to the Ex­ec­u­tive Au­thor­i­ties. Also see Govern­ment of Pak­istan v Muham­mad Ashraf (PLD 1993SC 176) and All Pak­istan Tex­tile Mills As­so­ci­a­tions v Prov­ince of Sindh (2004 YLR 192)." [Page 18, Para 20]

Sec­tion 3(2)(b) of the Sales Tax Act, 1990 says: "the fed­eral govern­ment may, sub­ject to such con­di­tions and re­stric­tions it may im­pose... de­clare that in re­spect of any tax­able goods, the tax shall be charged, col­lected and paid in such man­ner and at such higher or lower rate or rates as may be spec­i­fied in the no­ti­fi­ca­tion."

Sec­tion 3(2)(b) of the Sales Tax Act, 1990 only autho­rises the fed­eral govern­ment to vary tax rates in case of tax­able goods and not to im­pose fixed amount of sales tax as has been done through SRO 57(I)/2016. Im­po­si­tion of fixed sales tax is thus void ab ini­tio even un­der del­e­gated pow­ers, not­with­stand­ing the fact that such pow­ers vi­o­late Ar­ti­cle 77 of the con­sti­tu­tion. SRO 57(I)/2016 also ex­posed the tall claims made by the fi­nance min­is­ter in a press con­fer­ence on May 11, 2015, that "through [the] Fi­nance (Amend­ment) Or­di­nance, 2015, power of [the] FBR to is­sue SROs has been with­drawn". He said that such pow­ers were trans­ferred to the Eco­nomic Co-or­di­na­tion Com­mit­tee of Cab­i­net in "ex­cep­tional cir­cum­stances". If this was the case, why had ap­proval not been sought from the EEC? In fact, sec­tion 3(2)(b) of the Sales Tax Act, 1990 does not re­quire ap­proval of the EEC.

The levy of fixed sales tax un­der sec­tion 3(2)(b) of the Sales Tax Act, 1990, as dis­cussed above, is patently un­law­ful. In the wake of the Supreme Court pro­nounce­ment in En­gi­neer Iqbal Za­far Jha­gra and Sen­a­tor Rukhsana Zu­beri v Fed­er­a­tion of Pak­istan and Oth­ers (2013) 108 TAX 1 (SC Pak), im­po­si­tion of taxes, or vary­ing tax rates or grant­ing ex­emp­tions and con­ces­sions through SROs, amount to con­tempt of court. The per­pet­ual vi­o­la­tion is ev­i­dent on the web­site of the Fed­eral Board of Rev­enue (FBR) but no ac­tion has been taken by the Supreme Court so far. The Na­tional As­sem­bly or Se­nate have also not de­bated this cru­cial is­sue from the con­sti­tu­tional per­spec­tive.

On the one hand, the FBR has been ex­tend­ing nu­mer­ous re­duc­tions in du­ties and tax con­ces­sions to car­tels through SROs. On the other, the govern­ment im­poses ex­or­bi­tant taxes on pe­tro­leum prod­ucts - in the process hurt­ing the econ­omy and low-in­come groups. By im­pos­ing higher sales tax and other in­di­rect levies, the govern­ment is not pass­ing on the ben­e­fit of the global re­duc­tion in pe­tro­leum prices. This re­tards eco­nomic growth and makes our ex­ports un­com­pet­i­tive in the in­ter­na­tional mar­kets.

Pak­istan is a unique coun­try where the ex­ec­u­tive au­thor­ity can con­ve­niently undo tax laws passed by par­lia­ment through ex­ec­u­tive or­ders (SROs); this is vi­o­la­tion of Ar­ti­cles 77 & 162 of the con­sti­tu­tion.

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