Dr. Ikramul Haq
Dr. Ikramul Haq, a leading international tax counsel, is a well-known author specialising in international tax, press, intellectual property, corporate and constitutional law. Dr. Ikram is Chief Partner of Lahore Law Associates (fax: +92 42 6365584, e-mail: irm@brain.net.pk; website: http://www.paktax.com.pk). He is a member of the visiting faculty of the Lahore Institute of Tax Education (LITE). He studied literature, journalism and law, for his Masters and Doctorate degrees. He has written many books on various aspects of Pakistani law and global narcotics trade, some of which are co-authored with his wife, Mrs. Huzaima Bukhari.
Pakistan is a unique country [perhaps the only one] which is divided into taxable and non-taxable territories. There are certain parts of the country that fall outside the constitutional operation of tax laws, enacted by the parliaments, both federal and provincial, unless the same are specifically extended to such areas through a specific procedure prescribed in the Constitution. The tax laws, validly enacted by the parliaments, according to their respective constitutional domains, cannot be extended to the Federally Administered Tribal Areas (FATA) and Provincially Administered Tribal Areas (PATA) in terms of Article 246 and 247(3) of the Constitution of Pakistan.
It is provided in Article 247(3) of the Constitution of Pakistan that: “No Act of Majlis-e-Shoora (Parliament) shall apply to any Federally Administered Tribal Area or to any part thereof, unless the President so directs, and no Act of Majlis-e-Shoora (Parliament) or a Provincial Assembly shall apply to a Provincially Administered Tribal Area or to any part thereof, unless the Governor of the Province in which the Tribal Area is situate, with the approval of the President, so directs; and in giving such a direction with respect to any law, the President or, as the case may be, the Governor, may direct that the law shall, in its application to a Tribal Area, or to a specified part thereof, have effect subject to such exceptions and modifications as may be specified in the direction”.
The expressions “Federally Administered Tribal Areas” and “Provincially Administered Tribal Areas” are defined and explained in Article 246 of the Constitution which reads as under:
“246. Tribal Areas. _ In the Constitution,
(a) “Tribal Areas” mean the areas in Pakistan which, immediately before the commencing day, were Tribal Areas, and include-
(i) the Tribal Areas of Baluchistan and the North-West Frontier Province; and
(ii) the former States of Amb, Chitral, Dir and Swat;
(b) “Provincially Administered Tribal Areas” mean _
(i) the districts of Chitral, Dir and Swat (which includes Kalam), the Tribal Area in Kohistan district, Malakand Protected Area, the Tribal Area adjoining [Mansehra] district and the former State of Amb; and
(ii) Zhob district, Loralai district (excluding Diki Tehsil), Dalbandin Tehsil of Chagai district and Marri and Bugti tribal territories of Sibbi district; and
(e) “Federally Administered Tribal Areas” include _
(i) Tribal Areas, adjoining Peshawar district;
(ii) Tribal Areas, adjoining Kohat district;
(iii) Tribal Areas, adjoining Bannu district;
(iv) Tribal Areas, adjoining Dera Ismail Khan district;
[(v) Bajaur Agency];
(va) Orakzai Agency;
(vi) Mohmand Agency;
(vii) Khyber Agency;
(viii) Kurram Agency;
(ix) North Waziristan Agency; and
(x) South Waziristan Agency.”
The tax laws, most important ones like the Income Tax Ordinance of 1979, Sales Tax Act of 1990, Customs Act of 1964 and Central Excise Act of 1944, are, therefore, not applicable to areas mentioned in Article 246 of the Constitution. Although, the CBR in utter violation of constitutional provisions recently issued certain rulings [e.g. C.No.1 (210)/STT/99 dated 15 March 2002] that although cellular service providers like Paktel activated cellular phones in Swat, but these are taxable services under the Sales tax Act, 1990 and are chargeable to tax in taxable territories. It is a patently unlawful interpretation and blatant violation of an explicit provision of constitution.
In a recent case, decided in March 2002, a Division Bench of the honourable Peshawar High Court (PHC), on a petition filed by Gul Cooking Industries and Bara Ghee Mills, termed the extension of Sales Tax Act 1990, to FATA and PATA as unconstitutional, hence illegal, and directed the CBR authorities to refund tax collected by the petitioners.
The Central Board of Revenue (CBR) has moved the Supreme Court of Pakistan against the Peshawar High Court’s judgement. In its petition, the CBR has pleaded with the apex court that the respondents (the FATA and PATA based millers) import raw material for their mills via Karachi, which falls within the purview of Sales Tax Act of 1990 and hence they are liable to taxes/duties applicable on industrialists of other parts of Pakistan. It is further pleaded that the concession granted to the respondents by PHC can reverse the entire tax collection system of the country. The CBR’s petition says that any special treatment to the PATA and FATA-based industrialists shall have far-reaching “negative impact on the country’s economy and taxation system”. The CBR prays in its petition that the decision of the Peshawar High Court (PHC) needs to be struck down “to avoid serious implications for the Federation of Pakistan”.
It is a novel way to plead a case in which serious constitutional issues are involved. The CBR stalwarts and representatives of the Federal Government are least concerned with the constitutional principles. They are only concerned with their failing targets as PHC’s decision, they are afraid, would have “negative” impact on the revenue system. How this decision is going to affect ‘country’s economy and taxation system’ is not going to be the concern of the honourable apex court that has to decide the constitutional aspects of the case, and not its monetary aspect.
The CBR’s wizards have extremely short memory. They should have remembered that in a similar constitutional matter pertaining to the Income Tax Ordinance, the PHC elaborately interpreted the relevant provisions of the Constitution and passed an authoritative verdict in [2000] 81 TAX 360 (H.C.Pesh). In the said case the honourable Court held that no provision of the Ordinance could be invoked in areas mentioned in Article 246 of the Constitution of Pakistan. The CBR in 2000 tried to apply section 80DD to exporters operating in non-taxable territories, though goods were exported through taxable territories. It is clear that the CBR did not learn any lessons from the said judgement and committed the same mistake again.
It is unfortunate that in the recent years, especially after taking of power by the military in October 1999, the State has become indifferent while applying constitutional principles in levying of taxes. They are making major changes in law in utter disrespect of well-established Rule of Law that “no taxation without representation”. The most recent example was that of 15% GST on all medicines. The decision created an uproar in the entire country and the regime had to retreat by exempting life-saving drugs. Protests are still under way to convince the State that taxing the poor will not serve any useful purpose nor is it going to fetch the initially calculated revenue of Rs. 5 billion. The repeated demand of withdrawing GST from medicines is still not accepted, perhaps due to some personal ego involved on the part of the CBR’s policy-makers.
As regards constitutionality of levying taxes on persons, incomes, goods and services within FATA and PATA there can be no two opinions that the CBR’s interpretation is totally illogical and unconstitutional. In order to bring such areas within taxable territories of Pakistan, constitutional amendment is required, which CBR wants to bypass by resorting to irrational interpretation of explicit law and applying self-assumed theory of nexus. The exclusion from taxation available to FATA and PATA is through precise and unambiguous words contained in the supreme law of the land, which cannot be defeated through subordinate legislation of making amendments in tax statutes and by issuing administrative Statutory Regulatory Orders (SROs).
If the State is serious to bring these areas within the ambit of taxation, the proper procedure of law should be adopted. The CBR should be directed by the Ministry of Law and our constitutional-expert Attorney General not to enter into the domain of interpretation of constitutional law, which is neither its forte nor its area of operation. It is certain that any violation of the supreme law of the land on the part of the Federal Government or apex revenue department vis-à-vis taxing rights in FATA and PATA will further destroy the already diminishing faith of the people in the tax system, besides creating further rift between the Federation and the provinces. The CBR should refrain itself from resorting to extra-constitutional measures to “improve” revenue collection and instead should divert its full attention to minimise leakages in collections by checking malpractices in the department.