Unconstitutional petroleum levy

Dr. Ikramul Haq

The Government of Pakistan Tehreek-i-Insaf (PTI) has been widely criticized by business houses, public at large and Opposition in National Assembly and Senate for imposing unprecedented high petroleum levy on petroleum oil lubricant [POL] products. All newspapers and electronic media channels on March 2, 2020 highlighted that the PTI Government “facing a revenue shortfall of over Rs. 480 billion in the first eight months of the current financial year, has increased by up to 106 percent the rate of petroleum levy on various oil products to raise an additional revenue of Rs.10 billion per month, or at least Rs. 40 billion by June 30, 2010”.   

After the spread of coronavirus, the prices of POL products drastically decreased and the Oil and Gas Regulatory Authority (OGRA) recommended Rs. 15 per liter reduction in the price of high-speed diesel and petrol from March 1. 2020. As expected, the Finance Ministry and the Federal Board of Revenue (FBR) opposed OGRA, reportedly saying that the government would be able to collect Rs. 40 billion till June 2020 by passing on half of the envisaged price cut. It needs to be reminded that this was not the first time the government increased petroleum levy—in fact during the last few months, it has been doing it in order to compensate tax collection shortfalls by FBR.

The Opposition furiously criticized the PTI Government in Parliament for not passing on “the full benefit of a considerable cut in the international price of POL products to the public”. Ironically, the critics from Pakistan Muslim League (Nawaz)—PMLN—conveniently ignored that during their five year rule [2008-13],  they  imposed the highest taxes on POL products, denying the public their bona fide right of availing benefit of all-time low prices in the international market! Now they are demanding a probe into what they call “organised scheme of looting billions from the nation”.

Senior journalist, Mehtab Haider, in a report revealed: “The non-tax revenue target of Petroleum Levy (PL) was proposed to increase from Rs. 216 billion to Rs. 300 billion that clearly indicates that the government made a commitment with the IMF to keep the petroleum levy on the higher side for pocketing additional Rs. 84 billion from the voiceless consumers”. In another report, he mentioned: “Through increased non tax revenues, the government has saved IMF programme from derailment… non tax revenues….does not become part of federal divisible pool (FDP) under National Finance Commission (NFC) and the provinces do not have any share in this revenue stream. If the government had decided to raise GST on POL products then it had become part of FDP and the provinces would have lion’s share out of it in accordance with resource distribution formula under the NFC arrangement”.

Nobody has yet raised the constitutional position of imposing petroleum levy. 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 PMLN government that was a gross violation of Constitution of Pakistan. 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 Petroleum Levy can be Rs. 20,000 per metric ton. In view of this amendment, the Government needs not go to Parliament and can raise the Petroleum Levy anytime while remaining within the maximum limit.  

Since Petroleum Levy is non-tax item, any amendment in Petroleum Products (Petroleum Levy) Ordinance, 1961 could not be through Money Bill. The law passed in 2018 by the Parliament 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 both by National Assembly and Senate. It can still be seen at the website of Senate of Pakistan at: 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, was flagrant violations of the supreme law of the land. It once again confirmed that the government of PML-N had total disrespect for the rule of law and democratic norms. Now its use by the PTI Government is also continuation of violation of supreme law of the land. 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 the Constitution 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 existence but nobody in the National Assembly, including PTI members raised the issue as to how amendment in Petroleum Products (Petroleum Levy) Ordinance, 1961 could be made part of Money Bill.

It is cardinal principle of law that if foundation of any law/action 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. If Opposition is sincere with the masses, it must go to Supreme Court against the PTI Government or their protest would be taken as mere lip service. The Supreme Court may also take suo muto action on this issue for violation of Constitution. 

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