Dr. Ikramul Haq
“It will not be out of context at this stage to observe that our country has a Federal System of Government, which is based on trichotomy of power, each organ of the State is required to function/operate within the bounds specified in the Constitution”—Syed Masroor Ahsan and others v Ardeshir Cowasjee and others PLD 1998 SC 823
Article 77 of the Constitution of Pakistan categorically 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 Supreme Court of Pakistan in its landmark judgement, Messers Mustafa Impex, Karachi v Government of Pakistan (2016) 114 Tax 241 (S.C Pak.), held that “neither a Secretary, nor a Minister and nor the Prime Minister are the Federal Government and the exercise, or purported exercise, of a statutory power exercisable by the Federal Government by any of them, especially, in relation to fiscal matters, is constitutionally invalid and a nullity in the eyes of the law. Similarly budgetary expenditure or discretionary governmental expenditure can only be authorized by the Federal Government i.e. the Cabinet, and not the Prime Minister on his own.”
Unfortunately, the fourth time Federal Finance Minister, Muhammad Ishaq Dar, has always been violating the command of the supreme law of the land and dictums of Supreme Court with impunity by levying taxes and varying tax rates through Statutory Regulatory Orders (SROs).
The most recent example of it was issuance of Statutory Regulatory Order (SRO) 179(I)/2023 dated February, 14, 2023 increasing rate of general sales tax (GST) from 17 percent to 18 percent and SRO 178(I)/2023 dated February, 14, 2023 enhancing the federal excise duty (FED) on locally-produced cigarettes. These was later made part of Finance (Supplementary) Act, 2023, passed by National Assembly on February 20, 2023, received the assent of the President on February 23, 2023 and published in the Gazette of Pakistan, Extraordinary, Pa-rt-I, dated the 23d February, 2023 as an Act No. X of 2023.
Ishaq Dar was responsible for inserting provisions in various tax codes aimed at nullifying the judgement of the Supreme Court Messers Mustafa Impex, Karachi v Government of Pakistan (2016) 114 Tax 241 (S.C Pak.) through the Finance Act 2017. It unconstitutionally empowered Federal Board of Revenue (FBR) to enhance the rate of sales tax with the approval of “Minister Incharge”. FBR unlawfully exercised this power vide SRO 713(I)/2017 dated July 31, 2017 even without approval of Minister Incharge. Through this SRO, high speed diesel was subjected to a rate of 40% and motor spirit excluding HOBO to 23.5% against the then standard rate of 17% under Sales Tax Act, 1990.
Visibly irritated by the landmark judgement of the Supreme Court, wizardssitting in FBR, proposed amendments through Finance Bill 2017 in Customs Act, 1969 [section 221A], Sales Tax Act, 1990 [section 74A], Income Tax Ordinance, 2001 [section 241] and Federal Excise Act, 2005 [section 43A] to nullify the judgement of Supreme Court in Messers Mustafa Impex, Karachi v Government of Pakistan (2016) 114 Tax 241 (S.C Pak.) and it was approved by parliamentarians in utter disregard of Article 77 of the Constitution.
It is regrettable that members of Parliament did not apply their independent mind and without any difficulty Ishaq Dar obtained their approval of above-mentioned unconstitutional provisions included in the Finance Act 2017. Since then blatant violations of Article 77 of the Constitution of Pakistan have been taking place e.g. levy of 40% sales tax through SRO 867(I)/2017 dated 31 August 2017 under premiership of Shahid Khaqan Abbasi and numerous of the same kind under Imran Khan, who claimed to be champion (sic) of the rule of law.
Levy of taxation through SROs is a naked and blatant violation of Article 77 of the 1973 Constitution of Islamic Republic of Pakistan [“the Constitution”]. Some stalwarts of FBR have been insisting that words “by or under the authority of Act”, as used in Article 77 of the Constitution, authorise “taxation by delegation” through SROs. However, before the Supreme Court in Messers Mustafa Impex, Karachi v Government of Pakistan (2016) 114 Tax 241 (S.C Pak.), Additional Attorney General submitted that “the levy and exemption of tax is the function of Parliament under Article 77 of the Constitution and…… power of exemption if given to the executive per se, would amount to the negation of the doctrine of parliamentary supremacy and the doctrine of separation of powers”. This submission was against the view of FBR and was confirmed by the Apex Court.
It is shocking that after the binding judgements of Supreme Court in Messers Mustafa Impex, Karachi v Government of Pakistan (2016) 114 Tax 241 (S.C Pak.) and Engineer Iqbal Zafar Jhagra and Senator Rukhsana Zuberi v Federation of Pakistan and Others [(2013) 108 TAX 1 (S.C. Pak)], FBR is imposing new taxes or varying rate of taxes through SROs violating not only Article 77 but also openly defying Article 189 of the Constitution.
The Supreme Court has categorically disapproved taxation by Executive in Engineer Iqbal Zafar Jhagra and Senator Rukhsana Zuberi v Federation of Pakistan and Others [(2013) 108 TAX 1 (S.C. Pak)] as under:
“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 1993 SC 176) and All Pakistan Textile Mills Associations v. Province of Sindh (2004 YLR 192).” [Page 18, Para 20]
The principle of “no taxation without representation”, embodied in Article 77 read with Article 162 of the Constitution, has perpetually and flagrantly been violated. Executive authority could not be given power to levy tax through notification. The delegation of legislative power to the federal government and/or Federal Board of Revenue (FBR) for levying taxes is in utter disregard of Article 77 read with Article 162 of the Constitution which says:
“162. Prior sanction of President required to Bills affecting taxation in which Provinces are interested: – No Bill or amendment which imposes or varies a tax or duty the whole or part of the net proceeds whereof is assigned to any Province, or which varies the meaning of the expression “agricultural income” as defined for the purposes of the enactments relating to income-tax, or which affects the principles on which under any of the foregoing provisions of this Chapter, moneys are or may be distributable to Provinces, shall be introduced or moved in the National Assembly except with the previous sanction of the President.”
The delegated power to an executive authority to issue SROs is in utter violation of Article 162 as parliament itself is not authorised to consider any Bill or amendment that imposes or varies a tax or duty, the whole or part of the net proceeds whereof is assigned to any province, unless the same is first approved by the President. Exercise of delegated powers by FBR to vary the rate of a tax or duty through SRO is a blatant violation of Article 162.
Enforcement of Rule of Law determines the failure or success of a society. In the context of tax laws, it means that taxes are imposed through parliamentary process and as per Constitution, rather than through SROs by Executive. Thus delegation of legislative power to the Executive to vary a tax or duty rate renders the entire tax system unconstitutional.
The writer, Advocate Supreme Court, is Adjunct Faculty at Lahore University of Management Sciences (LUMS), member Advisory Board and Visiting Senior Fellow of Pakistan Institute of Development Economics (PIDE)