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FBR: unconstitutional “legislator”   

Dr. Ikramul Haq

In the last week’s column, it was promised that till February 15, 2021, deadline set by the Federal Board of Revenue (FBR), for seeking proposals from all stakeholders, some concrete measures will be suggested rather than “meaningless amendments in tax codes, imposing more obligations on citizens as withholding tax agents, with no policy shift and administrative reforms”. Today’s column is confined to challenging the very jurisdiction of FBR to seek tax proposals and prepare Finance Bill, which is none of its business. In fact, it amounts to flagrant violation of the Constitution of Islamic Republic [The Constitution].  

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. The definition of “State”, [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 says: ‘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 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 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 decide tax policy and 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 prepare Money Bills after public debate, televised hearings of experts summoned and/or seeking written proposals from stakeholders.

The Supreme Court of Pakistan inMessers Mustafa Impex, Karachi v Government of Pakistan (2016) 114 Tax 241 (S.C Pak.) held that “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”.

The legislative work related to framing tax policy and proposing changes in tax codes has been unconstitutionally exercised by FBR and National Assembly just acts as a rubber stamp. The result is that FBR has failed to collect actual tax potential—which is not less than Rs. 8 trillion—and also destroying trade and business growth with its irrational and oppressive tax policies.

FBR’s Letter C.No.4(72)IT-Budget/2015-6255-R, says it is “currently engaged in the formulation of proposals for the Finance Bill 2021”. Under what authority of law are they doing this?. To benefit from the collective wisdom of all the stakeholders is not their job but that of Parliament. Para 2 of the letter says:

2. Your input/suggestions in the following policy areas shall be highly appreciated:-

  • Broadening of tax base for a wider participation in revenue generation efforts;
  • Taxation of real Income on progressive basis;
  • Phasing out of tax concessions and exemptions;
  • Removal of tax distortions and anomalies;
  • Facilitation of taxpayers and ease of doing business;
  • Promoting equity in taxation by introducing measures where incidence of tax is higher on affluent classes. The areas identified above are just illustrative and not exhaustive.

The areas identified above are just illustrative and not exhaustive”.

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 is FBR deciding these issues and seeking proposals from stakeholders?

The process of seeking tax proposals by FBR is in 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.” 

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 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 (Rich legislators of a poor nation, Daily Times, November 15, 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 “collective apathy” or “learned helplessness’. In the next column, the basis of formulating a sound tax policy through democratic process will be discussed.      


The writer, Advocate Supreme Court, is member of Adjunct Faculty at Lahore University of Management Sciences (LUMS).

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