Dr. Ikramul Haq
Over the period of time, Federal Board of Revenue (FBR), the apex body responsible for collecting federal taxes, has been violating its own law under which it came into existence. FBR was established through a Parliamentary Act, Federal Board of Revenue Act of 2007 [hereinafter “the FBR Act”], repealing the Central Board of Revenue Act, 1924 (IV of 1924). Through Federal Board of Revenue (Amendment) Act, 2011, section 2(ja) was inserted in the FBR Act defining “Policy Board” as established under section 6” of the FBR Act. After lapse of 9 years, the Policy Board has yet not been made operative although section 6 of the FBR Act says: “The Federal Government may establish a Policy Board to provide guidance in matters relating to thevision, mission and values of the Board, and to provide policy guidelines in framing fiscal policy and in achieving goals and targets”. Sub-section (4) of section 6 says: “The Policy board shall hold a meeting at least once in each quarter of a financial year”.
The above provision of law has not been adhered to by any government since 2011 though the FBR Act clearly stipulates the framing of fiscal policy through the Policy Board. FBR should only collect taxes within the framework of laws passed by the Parliament and fiscal policy formulated by a statutory Policy Board consisting of minister for finance as chairman, and members to include ministers of commerce, industries, textile, privatisation, chairmen and one member each of standing committees of finance and revenue of Senate & National Assembly, chairman FBR (to act as secretary as well) and any other persons to be nominated by prime minister having necessary qualifications, experience and expertise from amongst sectoral specialists and business on honorary basis. These nominations as per subsection section 6(5) of the FBR Act “shall be subject to ratification by the Standing Committees on Finance and Revenue of the Senate and National Assembly”.
Shockingly, in violation of the clear command of law passed by the Parliament, the job of framing fiscal policy remains within FBR. Member (Inland Revenue—Policy) and Member (Customs—Policy) have even been given delegated powers as per notification dated July 28, 2015 to even vary tax rates. This is also in violation of Article 77 read with Article 162 of the Constitution of Islamic Republic of Pakistan [“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.) held that:
“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.”
The framing of fiscal policy should be with the Policy Board under the FBR Act. Unfortunately, during the governments led by Pakistan People Party [2008-13] and Pakistan Muslim League (Nawaz) [2013-18] no attention was paid to implement section 6 of the FBR Act. The passing of the FBR Act in 2007 to ensure its autonomy as revenue collection body alone, and separation of function of framing fiscal policy through amendment in law in 2011 have been violated both by governments and tax administrators. The Supreme Court in (2013) 108 TAX 1 (S.C.Pak.) held:
“It is well settled proposition that levy of tax for the purpose of Federation is not permissible except by or under the authority of Act of Majlis-e-Shoora (Parliament). Reference in this behalf may be made to the case of Cyanamid Pakistan Ltd. V. Collector of Customs (PLD 2005 SC 495), wherein it has also been held that such legislative powers cannot be delegated to the Executive Authorities. Also see Government of Pakistan v. Muhammad Ashraf (PLD 1993SC 176) and All Pakistan Textile Mills Associations v. Province of Sindh (2004 YLR 192).” [Page 18, Para 20]
The Cabinet of coalition government of Pakistan Tehreek-i-Insaf (PTI) in November 2018 approved the summary to separate FBR’s policy from its operation. The PTI Government also held maiden meeting of the reconstituted Policy Board on February 12, 2019 and the then Finance Minister highlighted the statutory requirement of separation of tax policy and administration. However, no practical steps have been taken till today and like its predecessors, the PTI Government also relied on FBR to make policy and prepare finance bills in 2019 and 2020 violating the law and its own decision.
Section 3 of the FBR Act says, “There is hereby established a Board to be called the Federal Board of Revenue, which shall consist of not less than seven members to be appointed by the Federal Government”. FBR in terms of section 2(12) read with section 80(2)(b)(ii) of the Income tax Ordinance, 2001, is to be assigned the status of “company”. Every ‘company’ under section 114(1)(a) of the Income Tax Ordinance, 2001 is bound to file tax return whether it has taxable income or not as provided in Article 165A(1) of the Constitution: “For the removal of doubt, it is hereby declared that Majlis-e-Shoora (Parliament) has, and shall be deemed always to have had, the power to make a law to provide for the levy and recovery of a tax on the income of a corporation, company or other body or institution established by or under a Federal law or a Provincial law or an existing law or a corporation, company or other body or institution owned or controlled, either directly or indirectly, by the Federal Government or a Provincial Government, regardless of the ultimate destination of such income”.
Since 2007 FBR has been violating Article 165A(1) of the Constitution and section 114(1)(a) of the Income Tax Ordinance, 2001 by not filing tax returns, even if earning no taxable income. What a mockery that FBR did not bother to abide by the law that it enforces on others! It was elaborated in detail in The case of missing returns [The News, December 21, 2015].
Since 2011, the Policy Board under the FBR Act was to frame the fiscal policy but flagrant violation of section 6 of the FBR Act has been made by the lawmakers and law-implementers. Who will take note of these serious violations? This is a million-dollar question in our peculiar milieu!
Pakistan is a unique country where the legislators and administrators openly violate the laws 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 the violators in power. Even they never 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’.
The writer, Advocate Supreme Court, is Adjunct Faculty at Lahore University of Management Sciences (LUMS)