Parliament's right to impose taxes subjected to Public Trust doctrine: President's Counsel
The right of Parliament to impose taxes under Article 148 of the Constitution is not unrestricted and must be exercised in conformity with the principle that, powers conferred must be used with the doctrine of Public Trust, the Supreme Court (SC) was told during submissions made, when a Petition challenging the new Inland Revenue Bill was taken up for hearing on Thursday.
Mr. Nigel Hatch P.C., who appeared for Nihal Hettiarachchi, a Chartered Accountant and Fellow Member of the Institute of Chartered Accountants of Sri Lanka (ICASL), who has challenged the Bill, said the SC has applied the doctrine of Public Trust in several cases involving financial Bills including the Appropriation Bill of 2012.
The three- member Bench comprises Chief Justice Priyasath Dep and Justices Anil Gooneratne and Nalin Perera.
Counsel Hatch submitted that the principles of stability, transparency, certainty and the protection afforded to taxpayers against arbitrary and capricious exercise of powers by Revenue Authorities, inter alia are fundamental, and form the basis and/or framework of tax legislation in Sri Lanka, as set out in the Petition.
He said that Article 3 of the Constitution of 1978, not only lays down that sovereignty is in the People and is inalienable, it further lays down that sovereignty includes the powers of the government, fundamental rights and the franchise.
Article 4 of the Constitution provides for the exercise of the sovereignty of the people. It provides for the exercise of the legislative, executive and judicial power of the people [Articles 4(a), (b) and (c)] and provides further at Article 4(d) that the fundamental rights which are declared and recognized by the Constitution, shall be respected, secured and advanced by all organs of government. The SC, in reviewing the constitutionality of Bills, has always read Articles 3 and 4 together, the Counsel submitted.
The Court heard that, right to written reasons for the rejection of a Return was first introduced in the Inland Revenue Act ( IRA) No. 30 of 1978, which was an amendment to the IRA of 1972. This has been part of the tax law of Sri Lanka for the past 40 years without exception.
The contentious clauses in the Bill include 135(2) and/or 135(3), by which the time bar for assessment of Returns has been increased to four years. Thus the time bar imposed for assessments of a compliant taxpayer has been increased from 18 months to 4 years, which is arbitrary and capricious, leaving the taxpayer with uncertainty.
Furthermore, the time bar for assessment of Returns of 4 years, under the new Bill, applies to both compliant taxpayers who submit Returns and non-compliant persons who do not do so. The said Bill does not distinguish between compliant and non- compliant persons. This is per se arbitrary and discriminatory, and violates Articles 3 read with 4(d) and 12(1) of the Constitution,” Mr. Hatch said.
He added that the time limit to finalise an Appeal to the CGIR under Section 165(14) of IRA No.10 of 2006, is limited to 2 years, and failure to do so results in the Appeal being deemed to have been allowed and the tax charged accordingly. This protection afforded to taxpayers is omitted in the said impugned Bill.
“Clause 200 of the said impugned Bill purports to set out how the said Bill is to be interpreted. This purported Clause is unprecedented and ex facie violates Article 3 of the Constitution and Article 4(c) and the judicial power of Courts to interpret the law. This is an encroachment on the independence of the judici- ary and thus is patently unconstitutional,” he added.
Counsel also told Court that retrospective application of the Bill will affect the vested rights of taxpayers and hence, is unconstitutional.
It was submitted citing extensive case law from 1948 that Clause 200 per se, will require not only a 2/3 majority, but also the approval of the people at a referendum.
Mr. Nihal Hettiarachchi's Petition argued by Nigel Hatch, PC, was supported by Attorneys-at-Law Ms. S. Jayamaha and Ms. Siroshni Illangage, instructed by Attorney-at-Law Indunil Bandara.
Ten Petitions have been filed in the SC challenging the Bill. The other petitioners include UPFA MP Bandula Gunawardena and the Inland Revenue Deputy Commissioners’ Association, which comprises the organisation’s most senior and highest ranking officers, the Inland Revenue Staff Officers’ Association, the Inland Revenue Executive Officers Union and the Inland Revenue Service Union as well as the Inland Revenue Employees’ General Union. They have cited Finance Minister Mangala Samaraweera and the Attorney General as respondents.
Hearings will continue next week.