This year, the Federal Board of Revenue (FBR) has asked stakeholders to send tax proposals for budget 2025-26 as early as by January 31, 2025 “to enhance the budget formulation process and to reduce backend procedural burden”. The letter at FBR’s website says, “As a plan, we have started developing proposals for the Finance Bill, 2025. In pursuit of leveraging the collective expertise and insights of all stakeholders to refine tax policies, we cordially invite proposals for the forthcoming Budget for the Fiscal Year 2025-26”.
Para 2 of FBR’s Letter F.No. 1(2) SA-M(IRP)/2025 of January 7, 2025 reads as under:
“2. Your Input/suggestions in the following policy areas shall be highly appreciated:
- Boarding of tax base for a wider participation in revenue generation efforts.
- Policy suggestions for bringing entire value chain of all businesses in GST regime.
- Promoting progressive taxation by introducing various measures where incidence of tax is higher on affluent classes.
- Phasing out of tax concessions and exemptions under all tax laws.
- Facilitation of taxpayers and ease of doing business by removal of redundancy and simplifications of tax laws.
- Measures to reduce tax arbitrage opportunities and infuse efficiency in economy by following neutrality principle in taxation.
- Removal of tax distortions, procedural lapses and anomalies”.
Para 3 of the Letter clarifies, “Areas identified above are just illustrative and not exhaustive”, and emphasizes, “The proposals are expected to be clear, meaningful and implementable through addition, deletion, or further amendments to the tax laws”.
The FBR has requested the stakeholders to send their proposals by 31.01.2025”. It has further required that the same “may also be emailed in MS. Word/Excel format on the following email addresses and preferably on the format given below:
Each proposal must be supported by data analysis.
- For ICT (tax On Services) proposals: aamer.bhatti@fbr.gov.pk
- For Income Tax proposals: secy.itb@fbr.gov.pk
iii. For Sales Tax, and Federal Excise Duty proposals: sec.stbudget@fbr.gov.pk”
The format suggested by the FBR is:
| Section/Clause/ Rules | Proposed Amendments | Rationale | Revenue Impact |
| (1) | (2) | (3) | (4) |
The annual ritualistic exercise of seeking tax proposals by FBR needs comprehensive analysis from the perspective of the Constitution of Islamic Republic of Pakistan [The Constitution]. Every year, after this unproductive exercise, the Finance Bill makes existing tax codes more complicated due to pointless amendments and burdens the citizens with unconstitutional obligations to act as withholding tax agents with specific restriction of not entitled to any compensation. It is a blatant violation of their fundamental right, guaranteed under Article 11(2) of the Constitution, prohibiting all forms of forced labour. Unfortunately, no one has taken the matter to high courts challenging “forced labour”—unrewarding duties as withholding agents under the Income Tax Ordinance, 2001 and Sales Tax Act, 1990.
The judicial interpretation of the expression, “forced labour” as used in Article 11(2) of the Constitution, covers forcing somebody to do a task, which he/she is not willing to perform even for consideration. This is elaborated in ‘Enforcement of Fundamental Rights, Constitutional Case No. 1 of 1988’, decided on September 18, 1988, reported as 1989 SCMR 139 and Human Rights Commission of Pakistan v Federation of Pakistan PLD 2009 Supreme Court 507).
The Parliament of Pakistan, shockingly, passes such laws on the recommendation of FBR after approval by Federal Cabinet, but none of the elected members has ever taken note of this gross violation of the supreme law of the land. The Supreme Court of Pakistan and High Courts under the Constitution, mandated to protect the fundamental rights of citizens, have also unfortunately failed to examine such a legislation from the perspective of Article 11(2) of the Constitution till today.
FBR’s Letter F.No. 1(2) SA-M(IRP)/2025 of January 7, 2025, is in utter violation of the Constitution, as it encroaches the domain of Legislature. It says, “….we have started developing proposals for the Finance Bill, 2025”. Under what authority of law FBR is seeking tax proposals for the preparation of Finance Bill 2025!
The jurisdiction of FBR, being part of Executive, does not extend to any legislative work that includes preparation of Finance Bill, 2025. It is none of its business, even under the Rule of Business of 1973! In fact, it amounts to flagrant violation of the Constitution. This is sole responsibility of the Parliament as held by the Supreme Court in CIT v Eli Lily (Pvt) Ltd (2009) 100 Tax 81 (S.C. Pak). The Constitution forbids any of the organs to usurp or meddle into the matters of other organs. Usurping the powers of an organ by another organ or organs leads to complete fiasco as elaborated by Supreme Court of Pakistan in a number of cases e.g., Mian Muhammad Nawaz Sharif’s case PLD 1993 SC 473, Hakim Ali’s case PLD 1992 SC 595 and Zia ur Rehman’s case PLD 1973 SC 49.
The definition of “State” under Article 7 of the Constitution [first Article of Part II titled Fundamental Rights and Principles of Policy] says: “In this Part, unless the context otherwise requires, “the State” means the Federal Government, Majlis-e-Shoora (Parliament), a Provincial Government, a Provincial Assembly, and such local or other authorities in Pakistan as are by law empowered to impose any tax or cess”.
Article 3 [titled Elimination of exploitation] of the Constitution: “The State shall ensure the elimination of all forms of exploitation and the gradual fulfillment of the fundamental principle, from each according to his ability to each according to his work”.
Article 5 [titled Loyalty to State and obedience to Constitution and law] of the Constitution reads as under:
“(1) Loyalty to the State is the basic duty of every citizen.
(2) Obedience to the Constitution and law is the inviolable obligation of every citizen wherever he may be and of every other person for the time being within Pakistan”.
If “State” is not fulfilling its promise under Article 3 of the Constitution, how can it expect obligation from citizens imposed under Article 5(1) that “loyalty to the State is the basic duty of every citizen”?
The Constitution is a social contract between the State and citizens. Any infringement of this contract cannot be taken lightly. How have legislators given powers to FBR to propose Finance Bills when Constitution makes it clear under Article 77 of the Constitution that “no tax shall be levied for the purposes of the Federation except by or under the authority of the Act of Parliament”?
It is the duty of the legislators to devise tax policy, frame tax codes and make amendments in these. The Standing Committees of federal and provincial assemblies on revenue, having members of all elected parties, should themselves prepare Money Bills after public debates, televised hearings of experts summoned and/or seeking written proposals from stakeholders [see note of Justice Ch. Ijaz Ahmad in CIT v Eli Lily (Pvt) Ltd (2009) 100 Tax 81 (S.C. Pak).
In CIT v Eli Lily (Pvt) Ltd (2009) 100 Tax 81 (S.C. Pak), Justice Ch. Ijaz Ahmad in his separate note held as under:
“Our Constitution is based on trichotomy as law laid down by this Court in various pronouncements such as Zia ur Rehman’s case PLD 1973 SC 49, Mian Muhammad Nawaz Sharif’s case PLD 1993 SC 473 and Hakim Ali’s case PLD 1992 SC 595. The ratio of the aforesaid cases is as follows:–
Legislator to legislate the laws;
Executive to implement;
Judiciary to interpret the Law and Constitution
“2….Usurping the powers of an organ by another organ or organs leads to complete fiasco. According to my understanding of the Constitution, the machinery of the Constitution has delicately established an equilibrium and harmony among all the organs, limiting them not to go beyond their limits. Every Article of the Constitution has its own significance and importance but Article 4 read with Article 5(2) commands each and every citizen and organ to remain within its bounds as is evident from the statement of the Article. Article 4 directs every citizen to act in accordance with law whereas Article 5(2) demands obedience to the Constitution”.
[emphases supplied]The Supreme Court of Pakistan in Messers Mustafa Impex, Karachi v Government of Pakistan (2016) 114 Tax 241 (S.C Pak.) held as under:
“…neither a Secretary, nor a Minister and nor the Prime Minister are the Federal Government and the exercise, or purported exercise, of a statutory power exercisable by the Federal Government by any of them, especially, in relation to fiscal matters, is constitutionally invalid and a nullity in the eyes of the law. Similarly budgetary expenditure or discretionary governmental expenditure can only be authorized by the Federal Government i.e. the Cabinet, and not the Prime Minister on his own”.
[emphasis supplied]
The successive governments have assigned the FBR the legislative work related to framing tax policy and proposing changes in tax codes through a finance bill, which is patently unconstitutional. The National Assembly in tax legislation just acts as a rubber stamp. The result is that FBR has failed to collect actual tax potential—which is not less than Rs. 30 trillion (15% of GDP including informal economy)—and is also destroying trade and business growth with its irrational and oppressive tax policies, elaborated in detail in Towards Broad, Flat, Low-rate and predictable taxes (Third Edition, October 2024).
Justice Ch. Ijaz Ahmad in his splendid note in CIT v Eli Lily (Pvt) Ltd (2009) 100 Tax 81 (S.C. Pak) made the following noteworthy comments that should be read by all:
“6. The procedure for enacting laws is prescribed under the Constitution e.g., deliberations and the recommendations of the committees, the proceedings of the drafting committee and the speech of mover at the time of introducing the draft along with the report of these committees or all valuable material. The objectives of the Assembly, the manner in which they meet any criticism, the resultant decisions taken thereon, amendments proposed, speeches in favour or against them and their ultimate adoption or rejection will be helpful in throwing light on the particular matter in issue”.
[under line for emphasis]
Since the creation of Pakistan, we have not been able to frame any Income Tax Act, duly debated in the Parliament. The repealed Income Tax Ordinance, 1979 and Income Tax Ordinance, 2001, currently in operation, were promulgated during the martial law regimes of General Zia-ul-Haq and General Pervez Musharraf, respectively, and later validated by the Parliament.
Under Article 89 of the Constitution, any Ordinance promulgated by the President of Pakistan after approval by the Cabinet, has a life of 120 days, provided the House (Senate of National Assembly) in which it is laid as Bill can give one extension for the same term. In case, an Ordinance is not enacted as an Act within the stipulated time, then it will automatically cease to exist. This scheme clearly shows that the framers of the supreme law of the land has cast duty upon the Legislature to frame the laws within the parameters prescribed under the scheme of the Constitution.
Tax system is one of the fundamental elements of a constitutional democracy. The important questions such as who is to be taxed, how much and for what purposes, are essentially political questions. These kinds of questions are always resolved through a political process. How tax obligations are to be imposed, administered and enforced are constitutional questions. The imposition, administration and enforcement of taxes raise vital issues about the rule of law, proper division of powers, and the role of judiciary and so on. How can FBR decide these issues by seeking proposals from stakeholders?
In CIT v Eli Lily (Pvt) Ltd (2009) 100 Tax 81 (S.C. Pak), Justice Ch. Ijaz Ahmad in Para 3 of his note held as under:
“Taxing laws in particular must be framed in such a manner that people of Pakistan themselves voluntarily pay the taxes encouragingly and honestly. Such a motivation can only be infused among the people by eliminating the fear of being exploited by the machinery and income tax authorities. Such motivation will encourage our people to join the list of taxpaying nations consequently stabilizing the financial position of the state helping Nation get rid of IMF and World Bank. Fixing upper and lower tax limits for all occupants, industrialists and professionals other than salaried people will help inculcate a sense of responsibility and an encouragement among the people. Having achieved the maximum tax limit, the rigours of law should not touch the assessees. Once this legal technique is adopted, every person shall try his level best to reach the maximum level rather than avoiding paying the tax. This formula will also eradicate social evils of concealing, lying and erroneously submitting income tax returns resultantly providing a better and stronger social system…”
[bold and italics added for emphases]
The process of seeking tax proposals by FBR and framing Finance Bill is in flagrant violation of Article 77 read with Article 162 of the Constitution as explained by the Supreme Court of Pakistan in Engineer Iqbal Zafar Jhagra and Senator Rukhsana Zuberi v. Federation of Pakistan and Others (2013) 108 TAX 1 (S.C.Pak.) as under:
“Parliament/Legislature alone and not the Government/Executive is empowered to levy tax. As far as delegation of such powers to the Government/Executive is concerned, the same is for the purpose of implementation of such laws, which is to be done by framing rules, or issuing notifications or guidelines, depending upon case to case, as we have come across some of the cases noted hereinabove. But in no case, authority to levy tax for the Federation is to be delegated to the Government/Executive. Therefore, arguments so raised by learned counsel have no force and the same are repelled hereby.”
[underlined for emphasis]
The principle of “no taxation without representation”, embodied in Article 77 read with Article 162 of the Constitution, has been perpetually and brazenly violated in Pakistan—a lamentable act that remains unnoticed at all levels. The prime culprits are members of Parliaments who have been delegating their legislative power of levying taxes to the federal government (through FBR). This is in utter violation of Constitution and the decisions of the Supreme Court cited above.
Our existing tax policy is anti-growth, regressive and unjust. Tax machinery is both inefficient and oppressive. The sole stress on meeting revenue targets, without evaluating its impact on the economy, has crippled our trade and industry, especially after following the dictates of the foreign lenders. The results of prescriptions by World Bank and International Monetary Fund to fix the ailing economy and anti-growth tax system are discussed in detail in Tax Reforms in Pakistan: Historic & Critical View (available free at https://file.pide.org.pk/pdf/Books/Tax-Reforms-in-Pakistan-Historic-and-Critical-View.pdf).
FBR is merely a tax collection body and nothing else. It should first of all take all those legislators to task who are violating the command of Article 5(2) of the Constitution to pay their taxes diligently. Majority of the legislators, who are under oath to safeguard the Constitution, are the worst violators by not filing tax returns or declaring laughable incomes but accumulating assets worth billions of rupees [Restructuring the tax system—III, Business Recorder, January 24, 2020].
Pakistan is a unique country where the legislators and administrators openly violate the Constitution and even well-educated members of civil society and human right activists ask the courts to take suo muto action or lawyers to file pro bono petitions but keep on voting these violators in power. They never even bother to sue the state functionaries for their unlawful acts or not fulfilling the obligation imposed by laws! This is called “collective apathy” or “learned helplessness’.
Pakistan needs to move towards fair and simple tax system that can yield sufficient resources for the State—as defined in Article 7 of the Constitution—for welfare of citizens. Details are available in Towards Broad, Flat, Low-rate and Predictable taxes (Third revised edition October 2024) [available free at https://primeinstitute.org/wp-content/uploads/2025/01/Towards-Broad-Flat-Low-rate-Predictable-Taxes-Third-Edition.pdf].
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Dr. Ikramul Haq, Advocate Supreme Court, Adjunct Faculty at Lahore University of Management Sciences (LUMS), member Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE), holds LLD in tax laws. He was full-time journalist from 1979 to 1984 with Viewpoint and Dawn. He also served Civil Services of Pakistan from 1984 to 1996.