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Dr. Ikramul Haq[*]
The failure to act prudently creates certain things as fait accompli in a nation’s life. The Income Tax Ordinance 2001, which is going to be imposed upon us before 26 September 2001, on the dictates of the International Monetary Fund (IMF) as a precondition for release of the final tranche of Stand-By Arrangement, is Pakistan’s fait accompli. Since the posting of the draft of new tax law at the CBR’s website, many conscientious writers and representatives of Tax Bars have highlighted its deficiencies and possible disastrous effects, but the Government remains unmoved knowing well that beggars cannot be choosers. The Finance Minister has been claiming persistently, “we are not dictated” by the donors. One wonders what motivated him to impose on us an alien piece of tax legislation, which is the worst work of a legal draftsman I have ever come across.
I have decided not to analyse this proposed law for two reasons: one, it is not even worthy of any comments being a totally hopeless, half-hearted attempt and secondly being fait accompli it is not reversible, thus pinpointing its deficiencies, anomalies and dichotomies would be an exercise in futility. The government and the CBR are helpless as the Committee constituted for redrafting did not prepare this proposed law, but on the dictates of the IMF some foreigner, who has neither expertise nor any insight into the mundane realities of Pakistan, simply handed it over to the “independent” and ‘brilliant’ finance minister of our “sovereign” State.
A report in an English daily on 7th September 2001 says that our Cabinet is going to approve the new Income Tax Ordinance 2001 in its next meeting. The IMF has already asked the government to enforce the new Income Tax Ordinance before the last tranche of the Stand-By Arrangement is released. The last tranche of the IMF Stand-By Arrangement is $ 131 million (105 million SDRs) that has to be withdrawn by end-September, which in case of delay would lapse. On September 6, 2001, the Central Board of Revenue (CBR) formally placed a request to the Cabinet Division to include the draft Income Tax Ordinance 2001 in the agenda of the next Cabinet meeting. The Ordinance would be enforced in July 2002, however, after its promulgation this month, further amendments/changes would be made to “make it more practicable for the general public”.
It is an ugly joke with the entire nation. The military junta has been trying to convince us that they keep national interests ahead of everything and pay least heed to any international pressure that dissuade them from their “holy mission of protecting national interests”. Their actions speak otherwise as far as tax policies are concerned. In order to please the foreign donors they have been following each and every command of the IMF, which is perpetually destroying our economy and making the life of ordinary people more and more miserable with every passing day. This appears to be the beginning of the agenda of CIA, unveiled in a section of our press on 7th September 2001: Pakistan is the best example where globalization could cause breakdowns because the country “seems to encompass the worst of everything.” In its latest report on global demography trends, ‘Reshaping the Geopolitical trends‘, the CIA says: “Globalization means there could be breakdowns in bigger, developed, urban places where the United States may not be able to intervene.” The IMF through anti-people policies, which our government is following in letter and spirit, is paving the way for ‘breakdown”.
The CBR people have openly admitted [Business Recorder, 7th September 2001] “the pressure of the IMF to enforce it now is basically lack of its confidence on any future change in government policy that could delay the promulgation and actual enforcement of the Ordinance. The collection of income tax would be done on the enforcement of the Ordinance in July 2002. It would be part of the Ordinance to be promulgated, that the enforcement would be done in July next. The suggestions and proposals being received on the proposed new income tax law are being analysed. These will also be discussed with stakeholders and whatever the government approves would appear in the budget for fiscal 2002-03. At present there should be no apprehensions on account of provisions relating to taxing of perquisites under the new law”. This shows the seriousness and sincerity of the CBR stalwarts (sic) towards the process of tax reform. They are only worried about the IMF dictates and have no concern what negative impacts the new Ordinance would cause to the public at large in general and to the tax payers in particular. Pakistan joined the IMF on 11 July 1950 and some $5 billion worth of disbursements in more than 25 installments received so far have lead to a falling rupee, lower purchasing power, expensive electricity as well as natural gas, a declining standard of living, increased unemployment, inflation, deindustrialisation, unequal distribution of wealth, ethnic tension, child labour and now a complete loss of sovereignty.
The present regime has no mandate to enforce through Presidential Ordinance the new Income Tax Law. No taxation without representation is a cardinal constitutional principle. Since people do not have the right to vote against or in favour of the present regime, it has no mandate to enact a new tax law. It should leave this matter for the future elected government. However, it can leave the draft prepared by some alien scholar (one wonders how much money was wasted on this badly drafted, incomplete and useless document) for public debate with a view to help the next democratic government to already have some consensus on the new amendments in the income tax law. The process of open public debate may take two to three years. The next democratic government to be elected in October 2002 will have then an easy task either to make necessary changes in the existing income tax law or to enact altogether a new one. This regime has neither constitutional authority nor moral sanction to promulgate altogether a new Income Tax law. It can only make amendments in the existing law. The CBR’s high-up have no authority to say that after promulgation of this IMF-imposed law, the government would make amendments through the Finance Ordinance 2002 taking into account the suggestions of the stakeholders.
Every civilised society respects and adheres to the cardinal principle that one should not be forced to pay a tax imposed by a government without having the opportunity to vote for or against the tax measure, either directly, or through elected representatives. The present setup (which is a military rule minus martial law) since deposing the elected government on 12 October 2000 has imposed a number of tax measures in utter violation of this well-established rule of law.
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 problems about the rule of law, proper division of powers, the role of judiciary and so on.
The imposition and administration of taxes is a purely constitutional issue, which cannot and should not, be tackled by a military regime against whose policies the people have no right to vote. Political process for the establishment and reinforcement of a constitutional democracy and democratization of society has always been interrupted in Pakistan by military regimes, for which the blame goes mainly to the political leadership itself, which is both immature and corrupt.
Sufferings of the Pakistani masses are increasing day by day as the present regime is vigorously following the agenda of tax reform prescribed by the foreign masters who have their own vested interest to see this nuclear-state as a bankrupt economy. Their designs have now a better chance to succeed, as no representation is possible against the taxation measures of the present military regime. The excessive use of administrative discretion and delegation of legislative authority to tax bureaucracy has destroyed the entire tax system of the country. The so-called wizards sitting in the CBR have been playing havoc with the tax laws by issuing infamous SROs and administrative instructions. The process was a modus operandi to serve the political masters during the so-called democratic governments. It continues unabated during the present setup, now in order to serve the interest of foreign masters to impose all kinds of oppressive, anti-people tax laws and recovery measures.
No tax should be imposed unless the government has actually exercised the legal power to impose it. In some countries such as France and Belgium, this “right” to choose untaxed alternatives is understood in constitutional rules enjoining the strict interpretation of law. The so-called champions of democracy while strongly asking for the restoration of electoral process in Pakistan are not opposing the present regime’s harsh, illogical and authoritarian tax policies, knowing that in fact, their own agenda is being implemented without any questioning or resistance through the people’s right to vote against it. This unveils the real motives of the foreign donors and their lip service to the cause of restoration of democracy in the country. There exists a serious danger in today’s Pakistan that the very legitimacy of the taxation system may be destroyed, if not ultimately the legitimacy of the government. Oppressive tax measures are not a basis for good governance. If the present regime wants to protect the vital interests of Pakistan, it must pave the way for design and reform of democratic institutions, standards, norms and moral values without which instability will increase. There is a genuine apprehension that any further disintegration of our political, legal and fiscal institutions may culminate into a complete breakdown.
[*] 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.