Crossing constitutional boundaries Dr. Ikramul Haq This series aims at presenting concrete proposals for amendments in the provincial sales tax on services enactments to remove constitutional and statutory distortions, textual anomalies and inherit contradictions in rules vis-�-vis legal provisions. Fiscal structure of Pakistan, after coming into operation of Constitution (Eighteenth Amendment) Act, 2010 [18th Amendment] on April 19, 2020, was intended to strengthen provincial autonomy within a coherent constitutional federation. Instead, the provincial sales tax regimes established by Punjab, Sindh, Khyber Pakhtunkhwa and Balochistan have gradually evolved into competing and overlapping fiscal jurisdictions. Each province is attempting to expand its tax base far beyond respective territorial limits, specifically prohibited under Article 141 of the Constitution of Islamic Republic of Pakistan ["the Constitution"]. The result is growing constitutional confusion, multiple taxation of the same transaction, endless litigation and rising compliance costs for businesses operating across Pakistan. The issue is no longer confined to mere administrative disagreement between provincial revenue authorities, namely, Punjab Revenue Authority (PRA), Sindh Revenue Board (SRB), Khyber Pakhtunkhwa Revenue Authority (KPRA) and Balochistan Revenue Authority (BRA). It now raises a fundamental constitutional question: can a provincial assembly enact laws having extra-territorial effect? The answer under Article 141 of the Constitution is plainly in the negative. Parliament alone possesses legislative competence to enact laws with extra-territorial operation. Provincial assemblies may legislate only "for the Province or any part thereof". Yet the sales tax laws presently administered by PRA, SRB, KPRA and BRA increasingly operate beyond those constitutional limits. The Supreme Court settled this issue authoritatively in Messers Sui Southern Gas Ltd & Others v Federation of Pakistan & Others (2018 SCMR 802), holding that provincial legislatures do not possess extra-territorial legislative competence and cannot regulate matters transcending provincial boundaries. The Court categorically observed that while Parliament may enact laws having extra-territorial operation, no such power has been conferred upon provincial legislatures. Despite this constitutional clarity, all provincial sales tax statutes contain provisions extending tax jurisdiction beyond geographical boundaries. The most striking example emerges from the Khyber Pakhtunkhwa Sales Tax on Services Act, 2022, especially after amendments introduced through Khyber Pakhtunkhwa Finance Act 2025. Section 3 now declares that "any provision of service is a taxable service" unless specifically excluded. However, the constitutional difficulty lies not merely in the breadth of the definition but in the jurisdictional reach of the charging provisions. Section 4 of Khyber Pakhtunkhwa Sales Tax on Services Act, 2022 taxes services originating outside the province if the recipient is resident in the province or "otherwise availing such services" in the province. It further taxes services originating from the province but terminating outside Pakistan. Even more significantly, subsection (3) of section 4 taxes services provided in multiple provinces "to the extent the tax is charged from a person resident in the Province or from a person who is otherwise availing such services in the Province". This language of above provisions effectively transforms KPRA into a trans-provincial taxing authority. A service may be rendered in Karachi, Lahore or Islamabad, yet KPRA claims jurisdiction merely because the recipient resides in Peshawar or "avails" the service there. Such legislative drafting directly conflicts with Article 141 and the Constitution explained by the Supreme Court in 2018 SCMR 802. The definitions incorporated into Khyber Pakhtunkhwa Sales Tax on Services Act, 2022 aggravate the constitutional overreach. "Place of business" includes even virtual presence in the province, while "provision of service" includes rendering, initiation, origination, reception, execution, consumption or termination of service "whether in whole or part." Such definitions effectively seek to create concurrent tax jurisdiction over a single transaction merely because one aspect of the service may remotely connect with the province. Balochistan Sales Tax on Services Act, 2015 as amended up-to-date is similarly expansive. Its preamble itself states that tax shall apply to services "provided, rendered, initiated, received, originated, executed or consumed in Balochistan". This formulation is constitutionally problematic because it attempts simultaneously to tax both origin and destination of services. As every province has adopted the same model, the same transaction inevitably becomes taxable multiple times. Punjab and Sindh even attempt to tax offshore vendors for digital services having no geographical connection or physical presence in Pakistan. The SRB and PRA recently have been increasingly asserting jurisdiction over transactions involving trans-provincial businesses, banks, airlines, telecom operators, digital platforms and financial institutions merely because one element of the transaction allegedly connects with their province. In practice, the same service may simultaneously attract tax demands from multiple provinces. Banks provide the clearest example of this constitutional disorder. Banking operations are inherently trans-provincial. Deposits may be mobilized in one province, financing arranged in another, head office functions performed elsewhere, and digital services utilized nationwide. Yet provincial authorities seek to tax the same banking transaction by invoking theories of origination, consumption, customer location, branch presence or recipient residence. The Constitution never contemplated four parallel tax sovereignties competing over the same economic activity. The same constitutional conflict now affects digital commerce. Online platforms, cloud services, streaming subscriptions, software services and electronic intermediaries inherently transcend territorial boundaries. Since each province attempts to independently classify, assess and tax digital transactions. The result is not merely multiple taxation but legal uncertainty incompatible with modern commerce. This constitutional drift has become more dangerous after July 1, 2025 when all provinces effectively shifted from a positive-list regime to an "everything is taxable unless exempt" approach. Earlier provincial laws broadly linked taxability to scheduled services. Now, by defining service as virtually anything not constituting goods, provincial authorities are attempting to convert Entry 49 into an unlimited residual taxing power. That interpretation is constitutionally untenable. Entry 49, Part I of Federal Legislative List (FLL), Fourth Schedule to the Constitution permits taxation of "services", but it does not authorize provinces to enlarge the constitutional field itself through statutory drafting. The Supreme Court in Elahi Cotton Mills Ltd v Federation of Pakistan (1997) 76 TAX 5 (S.C. Pak.) clearly held that constitutional taxing entries cannot be artificially expanded by legislative devices. The constitutional problem is compounded by extensive delegated legislation. Provincial statutes empower revenue authorities to add, delete, classify and regulate services through notifications and subordinate rules. Section 12 of Khyber Pakhtunkhwa Sales Tax Act, 2022 expressly authorizes government to amend schedules through notifications. Such powers allow executive authorities effectively to redefine the taxable field itself. Other provinces have similar provisions. Taxation is a core legislative function that cannot be delegated beyond constitutional limits. The Supreme Court in Mustafa Impex v Government of Pakistan (2016 PTD 2269) reaffirmed that essential elements of taxation must remain within legislative control. Similarly, in Pakistan Television Corporation Ltd v CIR (2019 SCMR 282), the Court held that delegated legislation cannot enlarge charging provisions through executive notifications. The present provincial sales tax regime suffers from both constitutional and structural defects. Provinces are not merely taxing services rendered within their territory; they are attempting to tax transactions based on residence, consumption, origination, destination and even virtual connection. Such overlapping claims inevitably create multiple taxation and constitutional conflict. The irony is that provincial autonomy intended to strengthen the federation is now producing fiscal fragmentation. Businesses operating nationally face simultaneous audits, conflicting assessments and contradictory interpretations from four provincial revenue authorities besides the Federal Board of Revenue (FBR). Instead of a harmonized VAT structure facilitating commerce and investment, Pakistan now has competing provincial tax sovereignties (sic) undermining economic integration. The constitutional position nevertheless remains clear. Provincial assemblies may legislate only within territorial boundaries prescribed by Article 141 of the Constitution. Services actually rendered within a province may be taxed by that province. But no province can constitutionally tax transactions merely because the recipient resides there, consumes there, or maintains some indirect connection with the province. Nor can provinces legislate for trans-provincial entities in a manner effectively regulating commerce beyond their borders. The present trajectory is fiscally disruptive and constitutionally unsustainable. Unless corrected through legislative harmonization or authoritative judicial intervention, the post-2025 provincial sales tax regime risks degenerating into permanent inter-provincial tax warfare damaging both federalism and economic growth. In the next part, the inherent contradictions within provincial sales tax statutes themselves will be examined, particularly after July 1, 2025, where overriding charging provisions now collide with older rules, sector-specific exclusions and conflicting valuation mechanisms, creating a system that is not only unconstitutional but internally incoherent as well. [To be continued] ___________________________________________________________________ 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 an 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.
The Provincial sales tax chaos series: Provincial sales tax chaos-II · Provincial sales tax chaos-III