Tax Machinery & Abuse of Powers

Adding Insult to Injury

By Ikramul Haq

The clarification issued by the Central Board of Revenue in response to “Tax Machinery and Abuse of Powers” confirms beyond any doubt that the administrative authority, controlling the entire tax apparatus, believes that it is above the law. The justification for not following the express provisions of law or doing something not permitted by the statute is so annoying that it can only be termed as adding insult to injury.

The open defiance of law, enacted by the Parliament exemplifies the worst act of transgression of administrative power. The public representatives in the Assembly must not treat it as yet another “innocent” procedural flow on the part of the CBR. The people of this land will never forgive their elected representatives if they fail to take a proper notice of the blatant transgression of administrative powers by the highest tax administrative body (CBR).

The text of CBR’s clarification, issued in response to above article, is reproduced below:

“Circular No. 8 of 1998 dated July 15, 1998 (Income Tax) has been issued to give effect to decision No. VII (“Ship stores/equipment imported for use on board the ships should be treated as bonded goods and would be exempted from levy of all duties and taxes”) of the Economic Coordination Committee (ECC) of the Cabinet (Case No. ECC-53/06/98 dated 14-4-1998).

Admittedly, the fiscal incentive cited in Item-VII of ECC decision dated April 14, 1998 was required to be announced in the budget of 1998-99. However, by sheer oversight it could not be so announced.

The CBR then allowed exemption from withholding tax through an Administrative Order. The Administrative Order was not issued, as the author obliquely suggest to “Accommodate, somebody”

Rather the Order was issued to implement a decision of the ECC of the cabinet. There can thus be no question of any “mala fide” on the part of CBR. The ECC having taken an unambiguous decision to allow “blanket exemption”  from levy of “all duties and taxes” to the class of specified items, the CBR is bound to defer to the decision.

There is thus also no question of any “revenue loss” here as the ECC decision requires that revenue be foregone from this particular source. Of course, the fiscal incentive embodied in the ECC decision was required to be placed before Parliament during the budget session. However, there is nothing on the relevant record to suggest that the fact that the said incentive was not got approved  by Parliament was motivated by a mala fide intention to circumvent Parliament.

As stated above, it is sheer oversight that prevented the fiscal incentive from being placed before Parliament during the budget session. An Administrative Order of the CBR can be said to be tainted with malafide intention only if the underlying basis for its issuance is suspect. In this case the basis of the Order is the ECC decision of 14/4/98.

The order is therefore, not “malafide”. It should also be kept in mind that here relief from taxation has been allowed through an Administrative order would always be illegal. In the present situation, as the relief was in any case bound to be allowed by CBR, and the basis of the relief is also clear, the Administrative Order in question cannot be cited as an example of administrative excess.

As regards Circular No. 2 of 1998 (IT) dated 16-2-1998, the Administrative Order has been issued, as stated in the Order itself to “streamline” the refund procedure. It is clearly in the public interest that the CBR interfere to ensure that refundable amounts are issued to claimants in an orderly and transparent manner. The instructions given through above cited Administrative Order make it abundantly clear that they are designed to ensure that the taxpayer is spared the mental torture that is a necessary sequel to onerous and arbitrary procedure. The authors are against the CBR is clearly misplaced as there is nothing at all in the Order that is even remotely suggestive of administrative malfeasance.”

The sheer “oversight” by CBR could have been easily rectified by issuing a gazette notification under section 14(2) of the Income Tax Ordinance, 1979 (hereinafter called “the Ordinance”). The resort to administrative instructions in the presence of statutory procedure was not only uncalled for but also unlawful. It undisputedly amounted to undermining the sovereignty of Parliament. The exemption, according to CBR, was approved by the Economic Coordination Committee (ECC) of the Cabinet and, therefore, a notification under section 14(2) of the Ordinance could not have posed any problem. The ECC is not above the law, nor is CBR or the Federal Government. The politics of giving “fiscal incentives” through delegated powers is the crux of the matter. This exercise of powers is ultra vires of the Constitution of Pakistan in terms of Article 162.

The issue involved is of great public importance. The CBR should not indulge in mere exchange of words to save the skin of a few highups in the hierarchy of administration. The question is not that of levelling of personal accusations, but rule of law. There are numerous examples where CBR exceeded its defined administrative powers. What CBR calls “sheer oversight” is, in fact, the worst example of utter disrespect for the rule of law. The law passed by the Parliament must be adhered to by all and sundry. The CBR was established to implement and administer the tax laws and not to violate them.

The increase in public revenue is the cry of the hour. At this critical juncture of our history where economic survival is at stake, the ECC and CBR are giving so-called “fiscal incentives” to some selected ones, which even if necessary should only be through the act of Parliament.

The Federal Government is to be blamed for this extra-constitutional process. The CBR is nothing but a puppet in the hands of rulers. The CBR administrative hierarchy knows how key administrative appointments are made. Those who accept such appointments know “what they are required to do”. Their subservience to rulers of the day is the key for survival. They can never work according to their conscience. How will they show loyalty to the state when a moment comes to make a choice between continuing with service or leaving it?

Adequate historic record is available to expose the Federal Government and CBR as since long they have been violating the sovereign prerogative of the Parliament. Blatantly they have been ignoring the judgements of the Superior Courts, which are binding in terms of Article 189 and 201 of the Constitution of Pakistan. The following amendments were made by the Federal Government between 1-7-1996 to 30-6-1998 in the Income Tax Ordinance, 1974 while exercising the delegated powers:

(i). SRO 574(I)/96 dated 1st July, 1996, (ii). SRO 596(I)/96 dated 9th July 1996, (iii). SRO 597(I)/96 dated 9th July 1996, (iv). SRO 653(I)/96 dated 31st July 1996, (v). SRO 647(I)/96 dated 4th August 1996, (vi). SRO 1173(I)/96 dated 8th October 1996, (vii). SRO 1207(I)/96 dated 16th October 1996, (viii). SRO 1399(I)/96 dated 24th December1996, (ix). SRO 181(I)/97 dated 22nd March 1997, (x). SRO 703(I)/97 dated 13th September 1997, (xi). SRO 406(I)/97 dated 3rd June 1997, (xii). SRO 1313(I)/97 dated 20th December 1997, (xiii). SRO 23(I)/98 dated 16th January 1998, (xiv). SRO 111(I)/98 dated 19th February 1998, (xv). SRO 169(I)/98 dated 16th Mach 1998, (xvi). SRO 171(I)/98 dated 17th March 1998, (xvii). SRO 516(I)/98 dated 5th June 1998 and (xviii). SRO 529(I)/98 dated 9th June 1998.

Not a single amendment was placed before the National Assembly alongwith the Finance Bill 1997 and 1998. Section 14(2), as inserted by the Finance Act, 1995, requires that all the amendments made by the Federal Government should be placed before the National Assembly during a financial year. The Finance Bills 1997 and 1998 are completely silent about these amendments. It is strange that the CBR did not realise in two years that a violation of law was committed (hopefully not this time by “sheer oversight!”). The Federal Government thinks that law passed by the National Assembly is a mere piece of paper. The people of Pakistan want an immediate answer as to what prevented the Federal Government and CBR to hide all these amendments from the sovereign Parliament. What is the validity of such amendments which were not placed before the Parliament in violation of section 14(2)?

Now we take the infamous Circular No. 2 of 1998, which according to CBR’s clarification, is meant to “streamline” the refund procedure. Law requires that wherever any refund is due it should be paid with assessment order and there is no requirement of an application by the taxpayer (section100 of the Ordinance). The CBR itself issued instructions through Circular No. 3 of 1978 & Circular No. 10 of 1985 to its officials to send refund vouchers alongwith assessment orders. The officers in the field do not comply with law and CBR’s instructions especially when matter relates to issuance of refund. The CBR cannot ensure the compliance of law and is now punishing the taxpayers to become a part of waiting list to get their refunds.

The CBR is party to this administrative highhandedness. Every year bonus and cash rewards are given to tax officials for achieving targets (sic), but the collection never reflects the money due to taxpayers. The whole nation is shamelessly hoodwinked by the CBR. Year after year they are showing gross collection as “target achieved”. What about the money payable as refund? If all the refunds due in a financial year are issued the net collection will be the correct figure as “target achieved”. Does the chairman CBR possess courage to give us the correct figure for the year ending 30th June 1998 of gross collection and refund due but not issued which will determine what is actually collected. The Auditor General has a constitutional duty to investigate this matter. The real motive behind Circular No. 2 of 1998 is to project exaggerated figures of collection i.e. not to reduce gross collection by refund due. This is not to “streamline” the refund procedure but to avoid the payment to taxpayers with ulterior motives.

The Honourable Lahore High Court has already declared in Writ No. 5241 of 1998 that this circular is unlawful and of no legal effect. It is a matter of concern that the Central Board of Revenue in utter violation of Article 201 of the Constitution is still indulging in self-praise that its circular is an improvement of the existing law. This confirms beyond any doubt that the CBR’s stalwarts are of the considered opinion that they are the ones who enact fiscal laws and the Parliament is a mere rubber stamp. Their attitude of disrespect towards the orders passed by the superior courts is highly lamentable.

In the recent past, the CBR’s instructions namely Circular No. 13 of 1997 and Circular No. 15 of 1997 were held to be without any lawful authority by the Honourable Lahore High Court [(1998) 77 Tax 127 (H.C. Lah) & 1998 PCTLR 1382]. The CBR, however, did not refrain from resorting to unlawful exercise of powers despite the clear judgement of the court:

“It is a matter of some regret that the Central Board of Revenue while issuing the Circulars does not follow the law declared by the Supreme Court of Pakistan ………. the CBR would be well advised to desist from issuing such circular which influences the decision of the adjudicating authorities.”

The Minister of Law and Parliamentary Affairs should take notice of these judgements and ask the CBR under what authority they are placing judicial interpretation of law through administrative instructions which amounts to interference in the quasi judicial functions of adjudicating authorities.

The abuse of powers by tax machinery in recent years has greatly annoyed even the appellate authorities. The Chairman Income Tax Appellate Tribunal in a recent judgement [(1998) 78 Tax 4 (Trib.)] made the following remarks:

“……….. It is further painful to find that not only the assessing officer but the supervisory officers from I.A.C. to Member (Income-tax), C.B.R. were unmoved in spite of repeated beseeching of assessee for the dispensation of justice. In the present case the law has been flouted blatantly and it appears without any fear of accountability and sense of responsibility. The tragedy and woe through which the assessee had to pass can be realized by any person having even the minimum sense of justice and fair play. Surely, it must be a nightmare for the assessee as in the entire hierarchy of the Income-tax Department nobody except the Regional Commissioner of Income Tax, was prepared to come to his help in getting an order of the rejection of rectification application so that remedy may be persued in the appellate forum. We understand that a genuine attempt is being made for reforming, restructuring and refining of the tax administration in Pakistan. However, until and unless an effective system of accountability is established no fruitful purpose can be achieved. We expect that the learned Chairman, C.B.R. shall taken this matter as a test case and after proper enquiry and due process of law shall take exemplary action against the concerned officers who not only caused worst kind of harassment to the assessee but also hoodwink the financial manage of the country by creating such demand which was not sustainable in law at all.”

No further comments are required as the above observations are the most apt appraisal of the current state of affairs prevailing in tax administration. It is high time that the stricture by the learned Chairman of the Income Tax Appellate Tribunal should be given due attention by the President of Pakistan, The National Parliament, the Minister of Law and the Superior Courts.