Huzaima Bukhari & Dr. Ikramul Haq
On September 13, 2001, the duo of General Pervez Musharraf [who seized power in a military coup on October 12, 1999 and resigned on August 18, 2008 from the presidentship to avoid impeachment, now awarded capital punishment for alleged high treason by the special court—detail order is still not released—eliciting criticism from armed forces and many others] and Shaukat Aziz [served as Prime Minister of Pakistan from August 20, 2004 to November 15, 2007 as well as the Finance Minister from November 6, 1999 to November 15, 2007] decided to promulgate a new income tax law on the dictates of International Monetary Fund (IMF). The new law repealed the time-tested Income Tax Ordinance, 1979 after 22 years when it attained acceptability and stability after authentic judicial pronouncements.
Before unnecessary enactment of the new law, many opposed it on two main grounds. Firstly, the Musharraf regime lacked legitimacy—it could not enact a tax law violating well-established principle, ‘no taxation without representation’. Secondly, it contained numerous typographical errors, conceptual inconsistencies and complexities. Ignoring the objections, General Musharraf promulgated Income Tax Ordinance, 2001, following in the footsteps of General Zia-ul-Haq, who promulgated Income Tax Ordinance, 1979. Income Tax Ordinance, 2001, even after thousands of amendments since 2002, is still full of drafting blunders—it is complicated, obscure and convoluted. Unfortunately, all civilan governments have never bothered to undo the legacy of a military dictator.
The Musharraf-gifted Income Tax Ordinance, 2001 till today remains in the field. Two political parties completed a decade of democracy [2008-18], namely, Pakistan Peoples Party [PPP] and Pakistan Muslim League (Nawaz) [PML-N], claiming to be champions of democracy, never cared to replace it. The self-suiting and self-serving laws like allowing disqualified persons to head a political party were passed within hours in National Assembly and Senate but oppressive tax laws from the eras of dictators adversely affecting the lives of millions under-privileged Pakistanis and dampening business growth, were retained—it exposes tall claims of undoing legacy of military dictators by all parties including Pakistan Tehreek-i-Insaf (PTI).
The compelling reason for hurriedly promulgating Income Tax Ordinance, 2001, without even removing typographical errors, was a precondition imposed by the IMF that the last tranche of Stand-By Arrangement of $131 would not be released unless a new income tax law, drafted by an Australian Assistant Professor (Lee Burns), was enforced. It was an act of naked and crude blackmailing. On September 6, 2001, the then Central Board of Revenue [now Federal Board of Revenue—FBR), 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 was going to be enforced in July 2002, but it was promulgated on September 13, 2001, two days after the New York tragedy [9/11]. Had the Government waited for some more days, it could have avoided its promulgation in the aftermath of General Pervez Musharraf’s joining the Bush Camp to support military attack/occupation in Afghanistan to usurp resources in the name of ‘war on terror’ (sic), the IMF released the last tranche without any hassle.
Finance Act, 2003 and the Finance Ordinance 2002 made 661 changes in Income Tax Ordinance, 2001. This became a unique law that was substantially amended even before the taxpayers could file their first returns of taxable income in September 2003! It was a mockery of legislation—a sad reflection on our commando General (sic) who shamelessly bowed before the IMF. However, it is equally appalling that three elected parliaments since then could not undo the legacy of a military dictator by enacting a new income tax law as an Act of Parliament after thorough debate and democratic process. This apathy on the part of elected representatives is highlighted by Supreme Court in CIT v Eli Lily (Pvt) Ltd (2009) 100 Tax 81 (S.C. Pak) as under:
“Since the creation of Pakistan we have not been able to frame any Income Tax Act duly debated in the Assembly. Both the Ordinances were promulgated during the Martial Law Regime otherwise the Constitution has prescribed a four month life of an Ordinance in case the Ordinance is not be placed before the Assembly and it shall be enacted as an Act then the Ordinance will automatically cease to exist. This aspect also reveals that the Constitution has cast duty upon the legislative body to frame the laws within the parameters prescribed under the scheme of the Constitution”….The fact that the Ordinance in question was issued and various amendments were incorporated before and even after the enforcement of the Ordinance 2001 raises the controversy that the Ordinance in question was promulgated without meticulous debate on the subject due to which assessees and concerned departments were compelled to agitate the issues in different courts.”
The Income Tax Ordinance, 2001 is such a badly drafted and complex law that until now it has over 2500 amendments. It has been generating enormous litigation since its inception. As the Parliament and FBR have failed to remove the inbuilt contradictions, revenue worth billions of rupees is lost till today. Supreme Court in (2009) 100 Tax 81 (S.C. Pak) pointed out:
“It appears that the Ordinance was drafted in post haste and the draftsman omitted to incorporate this important provision. This observation is supported from the fact that the Ordinance was subjected to speedy, successive and large scale amendments, particularly at its very inception.” It may be seen that section 238 provided that the Ordinance shall come into force on a date to be appointed by the Federal Government by notification in the official gazette. Accordingly, vide notification (SRO No. 381(I)/2002) dated 16.6.2002, the Ordinance came into force with effect from the first day of July 2002, but with more or less 1000 amendments inserted by the Finance Ordinance, 2002, as calculated by the learned counsel for the respondents…..Had the un-amended provision of subsection (1) of section 239 continued on the statute book, no difficulty would have arisen regarding the treatment of assessment orders passed in respect of the assessment year ending on 30th June 2003. In such eventuality, the assessments up to the said period would have been governed under the repealed Ordinance, while the assessments of the post enforcement period of the Ordinance of 2001 would be governed under the latter Ordinance.”
In the above case, the Supreme Court categorically held that “there is a need to review the language, content and scope of the power to amend and further amend an assessment, the power to revise an assessment and the power to rectify mistakes envisaged in these sections so as to make it in line with the legislative intent of consolidating the law relating to income tax so as to make it easily comprehensible to the convenience of the taxpayers.” This judgement, passed on 22 June 2009 and binding under Article 189 of the Constitution, has not been implemented even after lapse of 10 years. FBR has failed to enforce tax obligations because of conflicting and confusing provisions of the Income Tax Ordinance, 2001. It is high time that the government introduces a Bill in the Parliament for a new and simple income tax law. The leaders of two main political parties that enjoyed Decade of Democracy [2008-18]—Pakistan People Party and Pakistan Muslim League (Nawaz) are over-jubilant over death punishment to General (retd) Pervez Musharraf but when in power never bothered to undo his legacy and that of General Zia in tax codes as pointed out by the Supreme Court in CIT v Eli Lily (Pvt) Ltd (2009) 100 Tax 81 (S.C. Pak).
There is a consensus that existing income tax law is a most undesirable piece of legislation. Direct tax system intends to achieve the twin aims of maximizing revenue as well as utilizing revenue for achieving socio-economic objectives—both of which remain unfulfilled because of our present tax system. In fact, the complex regime of incentives and disincentives built into the direct tax law cannot but lead, per se, to difficulties in enforcement and to the opening of opportunities for tax-dodgers/evaders. At the operational levels, this has resulted in undue bureaucratization, corruption and harassment of the citizens. Undoubtedly, the time has come to resolve these contradictions and to convert direct tax regime into simple tax law as suggested by Tax Reforms Commission (TRC) in its final report submitted to Finance Minister in 2016, but yet not made public, even by the PTI Government despite demand from all stakeholders—this is utter violation of Article 19A of the Constitution.
The laws, enacted by the federal and provincial governments after insertion of Article 19A, cannot deny fundamental right of obtaining information of public importance in the camouflage of ‘secrecy” or “security” paradigm unless it is so related. For example, asking about the amount expended on perks, protocol, entertainment and foreign tours etc by military, civil officials and public office holders by no means fall in the category of “secret” or “sensitive” information.
The principle of interpretation of statutes is well-established that the fundamental right under Article 19A is a grant of the Constitution and, therefore, cannot be altered or abridged by a law enacted by any Parliament—federal of provincial. The Supreme Court in Watan Party & Others v Federation of Pakistan & Other [PLD 2012 SC 292] held: “So long as Article 19A is part of the supreme law of the land, nobody, including the apex court, can deny to the citizens their guaranteed fundamental right. There should not be any attempt, to limit or trivialize the scope of such right through an elitist construction whereby information remains the preserve of those who exercise state power”.
It is high time that the PTI Government makes report of TRC public, prepares and enacts a new income tax law that should be aimed at making it simple, in English and Urdu and easily implementable. It alone can generate resources besides achieving some limited but important economic objectives like promotion of savings, encouragement of new investments and conservation of energy. The recommendations by TRC remain largely unimplemented due to apathy of the FBR. It should be made public for open debate. A draft of simplified income law is available in Taxation [April 2014 issue]. It escaped the attention of TRC, FBR and other stakeholders. All concerned—members of Majlis-e-Shoora, tax administrators, trade and professional bodies, taxpayers, tax professionals and public at large—may debate it, suggest improvements and highlight shortcomings and deficiencies. The adoption of this simple law after a meaningful public debate can accelerate economic growth leading to better tax collection.
The writers, authors and lawyers, are Adjunct Faculty at Lahore University of Management Sciences (LUMS).