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Unconstitutional petroleum levy

Dr. Ikramul Haq

The Government of Pakistan Tehreek-i-Insaf (PTI) on June 26, 2020 to utter surprise and dismay of all increased the prices of all petroleum products substantially—it is usually done on the first day of every month after a summary is submitted by the Oil and Gas Regulatory Authority (OGRA) for increase or decease. This time there was no prior intimation, no summary from OGRA and everyone was taken aback that only a few days back the Prime Minister took pride in passing out benefit of lower prices to the masses and after shortage ordered inquiry into the matter. Reportedly, the Federal Board of Revenue (FBR) even started stocktaking of the oil companies. 

According to a brief statement issued by the Finance Division, the rise in prices of petroleum products was “in view of the rising oil prices trend in the global market”. The increase per litre was overwhelming: Petrol (motor spirit) by Rs. 25.58, from the existing Rs. 74.52, high-speed diesel by Rs. 21.31 from Rs. 80.15, kerosene oil raised by Rs. 23.50 from Rs. 35.56 and light diesel oil up by Rs17.84 from the current Rs. 38.14. The catch was to raise non-tax revenue through maximum imposition of petroleum levy (PL) of Rs. 30 per litre as it remains with the federal government, whereas any rise in general sales tax (GST) has to be shared with the provinces as per prevalent National Finance Commission (NFC) Award giving them 57.5% of proceeds.   

As expected, the rise has been widely criticized by business houses, public at large and Opposition for imposing maximum PL on some petroleum oil lubricant [POL] products. The criticism needs to be understood in proper perspective. Everybody was aware of the fact that POL prices would increase in July 2020 because the price of international crude oil increased from $20 a barrel two months ago to more than $40 per barrel in June 2020.

However, the question is: can government levy maximum Rs. 30 per litre of PL after standard imposition of 17% GST? For the last many months, the PTI government has been increasing PL to recoup huge revenue shortfall faced by the FBR. Nobody has yet raised the constitutional position of imposing PL. From where does the government derive power to enhance it without seeking approval from the Parliament? The answer is amendment made in Petroleum Products (Petroleum Levy) Ordinance, 1961 through Finance Act, 2018 under the government of Pakistan Muslim League (Nawaz)—PMLN. It was in gross violation of Constitution of Islamic Republic of Pakistan [“the Constitution”].

The Finance Act, 2018 substituted Fifth Schedule to the Petroleum Products (Petroleum Levy) Ordinance, 1961 authorising maximum imposition at the rate of Rs. 30 per liter on High Speed Diesel Oil, Motor Gasoline, Superior Kerosene Oil, Light Diesel Oil, High Octane Blending Component and E-10 Gasoline. As regards Liquefied Petroleum Gas (produced/extracted in Pakistan), the maximum levy can be Rs. 20,000 per metric ton. After this amendment, the Government needs not go to Parliament and can raise the PL anytime while remaining within the maximum limit.  

Since PL is non-tax item, any amendment in Petroleum Products (Petroleum Levy) Ordinance, 1961 could not have been made through Money Bill. The law passed in 2018 by then National Assembly was thus unconstitutional. In 2011, amendments were made in Petroleum Products (Petroleum Levy) Ordinance, 1961 through Petroleum Products (Petroleum Levy) Amendment Act, 2011, which was passed by both National Assembly and Senate as per the Constitution. It can be seen at the website of Senate of Pakistan: http://www.senate.gov.pk/uploads/documents/1363074572_505.pdf.

The substitution of Fifth Schedule to the Petroleum Products (Petroleum Levy) Ordinance, 1961 through Finance Act 2018, passed by National Assembly on May 18, 2018, bypassing the Senate was a flagrant violation of the Constitution. Now, its use by the PTI Government that is continuation of violation of supreme law of the land by PMLN Government. It was explained by the Supreme Court of Pakistan in Workers Welfare Funds m/o Human Resources Development, Islamabad through Secretary and others v East Pakistan Chrome Tannery (Pvt.) Ltd through its GM (Finance), Lahore etc. and others [(2016) 114 TAX 385 (S.C. Pak.)] as under:

We may develop this point further; although Article 73(3)(a) of theConstitution states that a Bill shall not be a Money Bill if it provides for the imposition or alteration of a fee or charge for any service rendered, this does not mean that if a particular levy/contribution does not fall within Article 73(2) it must necessarily fall within Article 73(3). Sub-articles (2) and (3) are not mutually exclusive. There may very well be certain levies/contributions that do not fall within the purview of Article 73(3) but still do not qualify the test of Article 73(2) and therefore cannot be introduced by way of a Money Bill, and instead have to follow the regular legislative procedure.

The above decision of the Supreme Court approved the judgement of Lahore High Court reported as 2011 PTD 2643 holding as under:

The special legislative procedure is, therefore, an exception and must operate in its restricted scope. Being a special procedure it also has to be construed strictly as it is a deviation from the normal legislative process under the Constitution. Integrity of a money bill must be jealously guarded and matters falling outside the purview of Articles 73(2)(a) to (g) of the Constitution should not be permitted to stealthily crawl into a money bill (at times due to political sophistry of the Government in power) and adulterate its sanctity”.

At the time of passage of Finance Act, 2018, the above judgement of Supreme Court was in the field but nobody in the National Assembly, including members of PTI raised the issue as to how amendment in Petroleum Products (Petroleum Levy) Ordinance, 1961 could be made through Money Bill.

It is cardinal principle of law that if foundation of any law is unlawful then superstructure automatically collapses. Since the very amendment in Petroleum Products (Petroleum Levy) Ordinance, 1961 as part of Money Bill was unconstitutional, all actions taken thereunder are untenable in law. If Opposition is sincere, it must go to Supreme Court against action of the PTI Government, or their protest would be nothing but a mere lip-service. The Supreme Court may also take suo muto action on this issue for violation of Constitution. 


The writer, Advocate Supreme Court, is Adjunct Faculty at Lahore University of Management Sciences (LUMS).

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