Huzaima Bukhari & Dr. Ikramul Haq
‘All lawmakers are taxpayers’—Finance Minister, Ishaq Dar, Business Recorder, January 7, 2014
On the first day of 2014, the Chairman Federal Board of Revenue (FBR), while appearing before Public Accounts Committee, offered an illegal, rather obnoxious interpretation, that since “tax has been deducted from salary of a parliamentarian, therefore, he/she cannot be considered as a tax defaulter”. One wonders how ignorant is Chairman FBR and parliamentarians. Are they really ignorant of the fact that under section 182(1) of the Income Tax Ordinance, 2001 penal action is warranted for not filing income tax returns and/or wealth statements? People want to know how our innocent and ignorant members of parliament survive on salary as sole source of income vis-à-vis their style of living—sprawling bungalows, luxury cars, army of guards and foreign travels, just to mention a few.
Unfortunately, the loyal Chairman FBR was defending the indefensible. An editorial of English newspaper summed it up brilliantly: “For them to say that they pay income tax is disingenuous; after all the salaries they receive as members of parliament have taxes deducted at source. But few, if any, members of parliament rely solely on this income. They usually have business interests, property and agricultural concerns on which they either pay no tax or severely underreport their income. We expect our politicians to lie to us, be it about taxation or any other matter, but the FBR should not be part of the cover-up”.
The editorial went to say that “tax dodgers are aided in their lawlessness by the FBR, where corruption reigns from the very top to the bottom. The higher-ups have political connections that lead them to turn a blind eye to tax evasion by the wealthy while the tax collectors at the bottom are happy to accept a personal bribe in lieu of paying taxes. To try and change this rotten culture is why we put pressure on parliamentarians to make public their tax returns. We have been misled too often to take them and their cronies at their word when they deny cheating the nation”.
On January 7, 2014, the Finance Minister informed Senate that FBR was directed to ensure issuance of National Tax Numbers (NTNs) to parliamentarians by January 31, 2014. Mr. Ishaq Dar said “a wrong impression has been created that Pakistani lawmakers do not pay taxes, while income tax was regularly being deducted from the salaries of all members of Senate, National and Provincial Assemblies”. The minister said the last date to file tax returns for the MPs was December 16, 2013 and now after issuance of NTN numbers, the tax details of all MPs would be made public by February 15, 2014. Dar pointed out that Chairman FBR had already given a detailed briefing to Public Accounts Committee of National Assembly on the issue. In order to remove misperception, he added, the FBR had also set up desks in parliament to facilitate MPs, but even then some 12 percent members could not get their NTNs. He said in the first phase, tax details of parliamentarians would be made public and in the next phase tax details of all taxpayers would be published within two months. The statement made by the minister was appreciated by opposition senators. Aitzaz Ahsan, leader of opposition in Senate, specially thanked the minister and said the step taken by him was commendable.
The statement by Mr. Ishaq Dar confirmed that the report, ‘Taxation by Misrepresentation’, (http://cirp.pk/TAXATION%20BY%20MISREPRESENTATION.pdf), released jointly by the Center for Investigative Reporting in Pakistan (CIRP) and Sustainable Development Policy Institute (SDPI), was correct. The report claimed that “out of 1,070 lawmakers voted to the national and provincial assemblies in the 2013 elections, 47 percent did not pay income tax and 12 percent of these members do not have a National Tax Number (NTN). Non-taxpaying MNAs are in all the major parties. The PML-N has the lion’s share with 54 such MNAs. PTI follows with 19 non-taxpaying MNAs. The PPPP has 13, JUI-F seven and MQM five. The PkMAP and JI have three each. The AAPML, PML, ANP and NP have one each MNA in this category”. The CIRP in its 2012 report, ‘Taxation without Representation’ exposed that “in both Houses of the Parliament, the Senate and National Assembly, there are 446 lawmakers and 300 of them have turned out to be tax-dodgers. Among them are those 88 MPs who don’t have National Tax Number (NTN), let alone paying income tax. There are 16 MNAs whose taxes couldn’t be examined due to lack of basic information like NTNs and Computerized National Identity Card (CNIC) numbers—one Senator from the calamity-hit area claimed tax exemption and one National Assembly seat is vacant”—(http://www.cirp.pk/Electronic%20Copy.pdf).
According to a news item in Business Recorder (January 8, 2014), the FBR will allocate NTNs to the parliamentarians taking into account nomination papers filed by the contesting candidates for Elections-2013 with the Election Commission of Pakistan (ECP). Out of nomination papers, the FBR has collected the CNICs of all the winning candidates of Election-2013. The FBR will differentiate between the non-NTN holders and NTN holders. A separate list of non-NTN holder parliamentarians would be finalised. On the basis of CNICs, the FBR will allocate the NTNs to the non-NTN holder parliamentarians and deliver the same to them for becoming compliant taxpayers. During the whole exercise, the parliamentarians may not voluntarily come forward and inform the FBR about their NTN status. At the same time, the process of filling of NTN forms may not be adopted by the parliamentarians. The FBR will itself complete the whole process and issue the NTNs to parliamentarians to facilitate them.
In pursuance of directions of Finance Minister, the FBR will ensure issuance of NTNs to all the parliamentarians by end of January 2014. In the past, on the request of the Senate Standing Committee on Finance, the FBR decided to establish a cell or office at the Parliament House to assist parliamentarians in obtaining NTNs and filing of income tax returns. The members of the committee had asked the FBR chairman to set up offices in the parliament and provincial assemblies to issue NTNs to them. At that time, the parliament secretariat had not provided any place to the FBR for setting up “Special Advisory Desk” to assist parliamentarians, including Members of National Assembly and Senate in obtaining NTNs. The FBR had also contacted the secretariat for deputation of tax officials for assisting the parliamentarians in obtaining NTNs or discharging their tax liabilities. The FBR had deputed senior tax officials to assist parliamentarians in discharging their tax liabilities, including filing of income tax returns. In this connection, the FBR had finalised the arrangements for setting up office at the Parliament House and waited for the response of the parliament secretariat. The entire scenario suggests that FBR feels helpless in dealing with the tax delinquents sitting in the parliaments. This is the tragedy of Pakistan—lawmakers are lawbreakers.
Tax system is one of the fundamental elements of constitutional democracy. The questions such as who is to be taxed, how much and for what purposes, are constitutional issues to be settled by the legislators—if elected members do not discharge their tax obligations diligently, the entire democratic system gets discredited. The imposition, administration and enforcement of taxes raise problems about the rule of law, proper division of powers and the role of judiciary etc. The exposure by CIRP that almost 70% of legislators did not file tax returns in 2011 presented a shameful scenario. The situation, as elaborated by latest joint report of CIRP-SDPI, is equally shocking. No society can even perceive that its legislators are tax delinquents—for some it is nothing short of subversion of constitution for which Musharraf is facing trial these days. The legislators are under oath to work within the four corners of supreme law of the land and their sovereign power to levy taxes stands nullified if they commit en masse violation of tax laws enacted by them!
No taxation without representation is a cardinal principle of democracy—Article 77 of our constitution says that no tax shall be levied for the purposes of the Federation except by or under the authority of the Act of Parliament. The reports of 2012 and 2013, prepared by CIRP/SDPI, show that this principle is perpetually and flagrantly violated by the legislators themselves. Implementation of Rule of Law determines the failure or success of a society. In the tax context, it means that taxes shall be imposed through a proper consultation method, through parliamentary process, rather than through administrative discretion [statutory regulatory orders (SROs)] and the resulting legislation must be respected by all.
The name and shame game in tax non-compliance, however, should not be confined to the members of parliaments alone. It must cover all, especially the powerful segments of society. All persons in the service of Pakistan, holding public offices and elected should file wealth statements conforming to their declaration of assets and liabilities filed under the respective laws governing them. The reports of CIRP/SDPI are only confined to parliamentarians; they should conduct similar studies for high-ranking State functionaries, men in khaki and mufti.
The issue of tax declarations of holders of public offices and high-ranking State functionaries should be tackled democratically. There should be a bipartisan Parliamentary Standing Committee on Asset Disclosures & Investigation. FBR should be obliged under law to convey to this Committee all the declarations filed by persons holding public offices. The Committee should have powers to compare declarations filed under the Civil Servants Act, 1973, Army Act, 1952 and related rules, Representation of People Act, 1976, the Senate (Election) Act, 1975, Rule 4 of the Political Parties Rules, 2002 with those filed under the Income Tax Law. In case of any discrepancies or complaint of suppression and concealment, the Committee could ask FBR, NAB, FIA, MP, Military Court, as the case may be, to take action under the law.
For bringing transparency, all the political parties should be required to file their tax returns. Section 13A of Indian Income Tax Act, 1961 requires mandatory filing of returns by the political parties and Chief Election Commissioner of India instructs the Indian Central Board of Direct Taxes (CBDT) to scrutinize accounts submitted by political parties. The Central Information Commission of India also directs Income Tax Department to disclose in public interest details of donors given by political parties in their tax returns. With this information in public domain, the Commission believes there will be transparency in the funding of both small and big parties, besides checking the flow of black money in the electoral process. These elements are completely missing in our polity. Chief Justice of Pakistan and our Election Commission should take note of this and the Parliament must amend existing election laws debarring tax delinquents from contesting elections.
The process of accountability in Pakistan must start with scrutinizing of declaration of assets, liabilities and taxes paid by politicians, high-ranking civil and military officials and judges. The civil society and media should come forward to force the parliament to abolish all laws relating to secrecy and/or immunity and enact a comprehensive legislation for obtaining information by any citizen under Freedom of Information Law. FBR should be authorised by the federal government to publish annual tax directory (it was done only in 1993 and 1994). This step will not only expose the rich and mighty who have amassed wealth, have failed to pay taxes under the law, but will also help to promote the much-needed tax culture.
The Federal Finance Minister should direct and authorise the FBR to publish (in digital and printed form) ‘Tax Payers’ Directory’ (covering both income tax and sales tax) of all persons. Section 216(1) of the Income Tax Ordinance, 2001 says that all particulars contained in any statement made, return furnished, or accounts or documents produced or any evidence given, or affidavit or deposition made, in the course of any proceedings under this law or any record of any assessment proceedings or any proceedings related to recovery of a demand shall be confidential and no public servant save as provided in this Ordinance may disclose any such particulars. There are many exceptions to this rule as contained in sub-sections (3), (4) and (5) of section 216. For example, it is clearly provided in sub-section (5) that nothing contained in sub-section (1) of section 216 shall prevent the Board from publishing, with the prior approval of the Federal Government, any particulars filed by any taxpayer and sub-section (6) in categorical terms states: “Nothing contained in sub-section (1) shall prevent the Federal Government from publishing particulars and the amount of tax paid by a holder of a public office as defined in the National Accountability Bureau Ordinance, 1999 (XVIII of 1999).”
It is now an admitted fact that in 2011 about 70% of Pakistani legislators—members of Senate and National Assembly—did not comply with section 116(2) of the Income Tax Ordinance, 2001 by not filing tax returns, wealth statement and personal expenses having taxable income of Rs. 500,000 [the limit from 2012 is raised to Rs. one million]. Instead of admitting their lapse and taking remedial steps, they accused FBR for “illegally” (sic) disclosing data. FBR was also found guilty for not taking any action against these defaulters and by not publishing their tax data, despite the clear instructions of the Federal Tax Ombudsman, to ensure transparency in electoral process. Thus in elections of 2013, these tax delinquents managed to contest and succeed at many places.
On discovering lapse on the part of legislators, it was the duty of FBR to promptly issue notices under the law to all those who failed to file their tax returns with wealth statements, but it did not bother and on the contrary its chief boss kept on defending the tax cheats sitting in the Parliaments. No doubt many legislators violated section 114 and 116 of the Income Tax Ordinance, 2001, but the fact remains that FBR was equally guilty of failing to issue notices under section 114(3) and 116(1) of the Income Tax Ordinance, 2001 to these defaulters. It is pertinent to mention that non-filing of return and wealth statement by any member of parliament attracts penalty under section 182(1), prosecution under section 191(1)(a) of the Income Tax Ordinance, 2001 and ultimately disqualification under Article 62(f) of the Constitution of Pakistan.
In all the leading democracies of the world, laws exist which ensure that people seeking votes to become their representatives should have integrity and character. Discharging of tax obligations is a requirement of law of the land and its violation by any individual attracts provisions of Article 62(f) of the Constitution of Pakistan which says: “A person shall not be qualified to be elected or chosen as a member of Majlis-e-Shoora (Parliament) unless he is sagacious, righteous and non-profligate, honest and ameen, there being no declaration to the contrary by a court of law”. Can a violator of income tax law escape the operation of this provision of supreme law of the land even when no action is taken by FBR against him and it is incontrovertible that he did not file income tax return and wealth statement required under the law?
It is not out of place to mention that two important nominees of Barack Obama in his first term—Tom Daschle and Nancy Killefer—withdrew their names after it emerged that they failed to keep their taxes in proper order. Let the political parties tell us if they know how many of their leaders have no problems with taxes. We, being practicing tax lawyers and having long experience as tax administrators, can say without any fear of contradiction that majority of them will be disqualified if we implement the democratic tradition followed by Barack Obama after landslide and historic victory in 2008 by admitting that he “screwed up” by nominating tax delinquents.
Our rulers, on the contrary, take pride in rewarding known corrupt and offenders by giving them important public offices. This is why our history is that of ‘Barren Years’—phrase aptly adopted as title of book containing editorials and columns by late Mazhar Ali Khan, veteran Pakistani journalist, written as editor of Viewpoint. The agenda of change, even from a pure moralistic point of view, must start from one’s self and own house. Those who are accusing others of tax avoidance are required to first prove that they have discharged their own liabilities diligently. There cannot be selective accountability and escape from law by using the attractive slogan of “change” or “reform” nor in their garb can anyone be allowed to rise above law by claiming himself to be a custodian (self-acclaimed) of morality. First of all let Mr. Ishaq Dar tell us why assets worth billions are kept abroad by his own sons, party bosses and their siblings. Nation wants him to refute with evidence charges of investment by Ali Dar in HDS Group (http://www.hdsgroup.org/) in UAE. Citizens expect that soon he will enlighten them about the story ‘The truth about Rs.3.48 billion Sharifs loan default’, published on April 9, 2013 in a section of Press [http://www.thenews.com.pk/Todays-News-13-22152-The-truth-about-Rs348-bn-Sharifs-loan-default].
It is a matter of record that even political parties in Pakistan do not file tax returns and FBR has never bothered to issue them notices. In India, there is a mandatory provision of law [section 13A of Income Tax Act, 1961] requiring political parties to file returns. Chief Election Commissioner of India asks the Indian Central Board of Direct Taxes to scrutinize accounts submitted by political parties. Central Information Commission of India also requires Income Tax Department to disclose in public interest, details of donors given by political parties in their tax returns. Are our political parties ready to do this? Never, as it will expose the flow of black money in the electoral process. Neither Election Commission nor FBR has ever bothered to consider this vital issue till today. Even the Supreme Court has not taken cognizance of this matter while passing many orders for conducting fair and free elections.
A meaningful change in electioneering requires that political parties should not only keep proper accounts and get them audited by reputed firms, but also file income tax returns, which should be made public. It would force them to take into their folds only those people who honestly discharge their tax obligations. The process of filtration within the parties is a necessary step towards a transparent and democratic setup and Election Commission of Pakistan should ensure its implementation.
In Pakistan, it is worth noting that violation of tax laws is not confined to parliamentarians. The ashrafiya (elites)—militro-civil bureaucracy, landed aristocracy, politicians, religious and spiritual leaders (ulema and pirs), loan beneficiaries, unscrupulous business tycoons—flout laws of the land with impunity and take pride in it. Since assets and tax declarations of powerful militro-civil-judicial hierarchy are not available, the citizens cannot know how much state land was given to them on throw-away prices and whether they paid tax on differential of market value as envisaged in section 13(11) of the Income Tax Ordinance, 2001 for this and other similar favours at taxpayers’ expense. This is the stark reality of today’s Pakistan—legislators make a mockery of laws enacted by them, and the mighty militro-civil-judicial complex takes cover under special laws to avoid public disclosure of asset and tax declarations!
Article 19A of the Constitution of Pakistan says that “every citizen shall have the right to have access to information in all matters of public importance subject to regulation and reasonable restrictions imposed by law.” Explaining the scope and import of this fundamental right, added in the supreme law of the land through 18th Amendment, the Supreme Court in Watan Party & Others v Federation of Pakistan & Other PLD 2012 Supreme Court 292 [commonly known as Memogate Scandal] held that “Article 19A has thus, enabled every citizen to become independent of power centres which, heretofore, have been in the control of information on matters of public importance….. Article 19A is a grant of the Constitution and, therefore, cannot be altered or abridged by a law enacted by Parliament…It, therefore, will not for this Court to deny to the citizens their guaranteed fundamental right under Article 19A by limiting or trivializing the scope of such right through an elitist construction whereby information remains the preserve of those who exercise state power.” Since our apex court has championed the cause of people’s right to information in PLD 2012 Supreme Court 292, it is a legitimate expectation of the citizens of Pakistan that as a first step, the honourable judges of Supreme Court and High Courts voluntarily make public their assets and tax declarations as was done by their counterparts in India many years back. The high-ranking military and civil officials should also do it to counter the criticism of the parliamentarians that they have been singled out in respect of disclosure of asset and tax declarations.
The exercise of constitutional right to access to information in all matters of public importance is necessary for transparency, accountability and good governance—essential elements of democratic dispensation. At the heart of Article 19A is ensuring accountability of all. Logically, the right to information must start from those who judge, adjudge and legislate. While legitimate concerns have been expressed about blatant violations of tax laws by the parliamentarians, no effort is made till today to public the tax and asset declarations of the powerful members of military-civil-judicial complex that has been beneficiaries of state lands and never paid tax on the same as required under section 13(11) of the Income Tax Ordinance, 2001.
The meaningful and effective exercise of Article 19A can make all four pillars of the State—Legislation, Judiciary, Executive and Media—accountable before law. Right to information in all matters of public importance, access to official record and free availability of what is owned by privileged classes must be assured as it will help improve governance, transparency and rule of law. Paying taxes is a constitutional obligation of all citizens—any violation by anyone should be dealt with according to law without any fear or favour for any person, notwithstanding his position in society. If lawmakers commit any lapse in respect of their tax obligations, they must be punished more rigorously than others, as they are custodians of public faith and money.
The writers, lawyers and Adjunct Faculty at Lahore University of Management Sciences (LUMS), are partners in law firm, Huzaima & Ikram.